At the beginning of 2012, Conway Manufacturing Company had the following account balances: During the year, the following transactions took place:
Remaining balance of Manufacturing overhead cleared to zero
As a result of these transactions, how much gross profit will Conway report?

Question

At the beginning of 2012, Conway Manufacturing Company had the following account balances:  During the year, the following transactions took place:
 Remaining balance of Manufacturing overhead cleared to zero
As a result of these transactions, how much gross profit will Conway report?

Quizplus · Accepted Answer

To calculate gross profit, we need to subtract cost of goods sold (COGS) from sales. 
Sales = $1,400,000 
COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory 
Beginning Finished Goods Inventory = $180,000 
Cost of Goods Manufactured = Direct Materials Used + Direct Labor + Manufacturing Overhead 
Direct Materials Used = $550,000 
Direct Labor = $475,000 
Manufacturing Overhead = $0 (cleared to zero) 
Total Cost of Goods Manufactured = $1,025,000 
Ending Finished Goods Inventory = $255,000 
COGS = $180,000 + $1,025,000 - $255,000 = $950,000 
Gross Profit = Sales - COGS = $1,400,000 - $950,000 = $450,000 
Therefore, the correct answer is B) $305,000.

At the Beginning of 2012, Conway Manufacturing Company Had the Following