# 11:19 PM Sat Jul 13T50%ACCT 2020 (Notes)ACCT 2020ACCT 2020 (Notes)year. (Hint: The first step is to calculate the direct materials used during the year.)E2-26A Compute Cost of Goods Manufactured and Cost of Goods Sold(Learning Objective 5)Compute the Cost of Goods Manufactured and Cost of Goods Sold for West NauticalCompany for the most recent year using the amounts described next. Assume that theRaw Materials Inventory contains only direct materials.Beginningof YearEndof YearEndof YearRaw materials inventory\$23,000\$25,000\$35,000 \$31,000Insurance on plant.\$ 11,500Work in process inventoryDepreciation-plant building and equipment .Finished goods inventory.\$13,400\$20,000 \$22,000Repairs and maintenance-plant3,700Purchases of direct materials\$74,000Marketing expenses\$77,000Direct labor\$86,000General and administrative expenses.\$ 28,500Indirect labor\$42,000RAWIPCOGMro002002306002326o0PL 8 fooD7hooo232 600coGSOm 7200042000tt500220003 100

Question

Referring to the question E2-26A in the textbook named Managerial Accounting by Pearson- 5th edition.

The expenses named “ insurance on plant, depreciation-plant building and equipment and repairs and maintenance-plant “, how can we identify they are not a kind of indirect costs of manufacturing?  For instance, insurance on plant is obvious an expenses because of manufacturing the product.

Plus, What is the purpose of the question mention- Assume that the RM inventory contains only direct materials?

Step 1

Expenses: Expenses are costs incurred for the operations of a business. The costs incurred for generating revenues are rent expense, depreciation expense, general and administrative expenses, selling expenses, and utilities expense.

Direct cost: Direct cost is the cost which is directly related to the business activities.

Indirect cost: Indirect cost is the cost which is not directly related to business activities but it is occurred to maintain the business. Indirect cost will calculated after the direct cost.

Step 2

Reason:

Insurance on plant, depreciation on plant, building and equipment and, repair and maintenance of plant are the expenses occurred due to the manufacturing of the product and the cost is fixed. Therefore, they are classified as the direct cost of manufacturing.

Step 3

Calculate the direct materials used.

 Calculation of direct materials used Amount (\$) Raw materials beginning inventory \$23,000 Plus: Purchase of direct material \$74,000 Materials available for use \$97,000 Less: Raw materials ending inventory (\$25,000) Direct materials used \$72,000
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