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# Ratio Analysis and Cost of Goods Manufactured

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Problem 1. The following information applies to Barnhart Company:

- Net Credit Sales = \$220,000
- Beginning Accounts Receivable = \$10,000
Required:

1) Compute Barnhart's:

a) Quick ratio
b) Current ratio
c) Working capital
d) Accounts receivable turnover
e) Average days to collect receivables
Problem 2. The Jiffy Manufacturing Company started operations in 2012 when it acquired \$100,000 from its owners. During the year, the company incurred the following costs:

The company placed 12,000 units into production, completed 10,000 units, and sold 8,000 units. The average selling price was \$17 per unit.

Required:

1) Prepare a schedule of cost of goods manufactured and sold for the year ended December 31, 2012.
2) Prepare an income statement for the year ended December 31, 2012.

#### Solution Summary

This solution handles both ratio analysis and manufacturing accounting. It gives a detailed explanation of the calculation of particular ratios and also shows how one should go about calculating the cost of goods manufactured and the net income for a manufacturing firm.

\$2.19

## Ratio Analysis and Statement for Manufacturing Firms

Problem 1. The following information applies to Barnhart Company:

• Net Credit Sales = \$220,000
• Beginning Accounts Receivable = \$10,000
Solutions:
a) Quick ratio = Quick Assets/Current Liabilities =
(Cash + Accounts Receivable)/(Accounts Payable + Salaries Payable)
(\$12,000+5000)/(\$9,000+4,000) = 17,000/13,000 = 1.31
b) Current ratio = Current Assets/Current Liabilities
(Cash + Accounts Receivable + Inventory)/ (Accounts Payable + Salaries Payable)
\$32,000/13,000 = 2.46

c) Working capital = Current Assets - Current Liabilities
\$32,000 - 13,000 = \$19,000

d) Accounts receivable turnover = Net Sales / Average Accounts Receivable
Average Accts Rec = [Acct Rec at beginning of year/Accts Rec a end of year] / 2
Average Accts Rec = (\$12,000 + 10,000)/2 = 11,000
Accounts Rec Turnover = 220,000/11000 = 20

e) Average days to collect receivables = 365/Acct Receivable Turnover
365/20 = 18.25

Problem 2. The Jiffy Manufacturing Company started operations in 2012 when it acquired \$100,000 from its owners. During the year, the company incurred the following costs:
The company placed 12,000 units into production, completed 10,000 units, and sold 8,000 units. The average selling price was \$17 per unit.

Required:

1) Prepare a schedule of cost of goods manufactured and sold for the year ended December 31, 2012.
2) Prepare an income statement for the year ended December 31, 2012.

Schedule of cost of goods manufactured
Beginning Work in process inventory \$0
Manufacturing costs:
Direct Materials \$40,000
Direct Labor 50,000
Less: Ending Work in process Inventory (\$110,000/12,000)*2000 (18,333)
Cost of Finished Goods Manufactured \$91,667
Schedule of cost of goods Sold
Beginning inventory of Finished Goods \$0
Add: Cost of Finished goods manufactured 91,667
Less: Ending inventory of finished goods [(\$91,667/10,000)*2,000] 18,333
Cost of Goods Sold 73,334

Income Statement
Sales Revenue (8,000 * \$17) \$136,000
Less: Cost of Goods Sold 73,334
Gross Profit 62,666
Less: Selling and Administrative Costs 30,000
Net Income 32,666

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