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Homework answers / question archive / Selected account balances for the year ended December 31 are provided below for BFun Company: Selling and administrative salaries
Selected account balances for the year ended December 31 are provided below for BFun Company:
Selling and administrative salaries . . . . . . . . . . . . . . . . . .$110,000
Purchases of raw materials . . . . . . . . . . . . . . . . . . . . . . . .$290,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000
Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . .$270,000
Sales Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000
Inventory balances at the beginning and end of the year were as follows:
Beginning of the Year End of the Year
Raw materials . . . . . . . . . . . . . . . . . . . . . $40,000 $10,000
Work in process . . . . . . . . . . . . . . . . . . . ? $35,000
Finished goods . . . . . . . . . . . . . . . . . . . . $50,000 ?
The total manufacturing costs for the year were $683,000; the goods available for sale totaled $740,000; and the cost of goods sold totaled $660,000.
Required:
1. Utilizing the inventory cost flow or equations, please find direct materials and cost of goods manufactured as well as the question marks that are in the above information.
2. If Sales were $1,000,000, please calculate Gross Margin, Net Operating Income, and the implied percentage for sales commissions. (Show the traditional income statement format to provide this information.)
3. Assume that the dollar amounts given above are for the equivalent of 40,000 units produced/sold during the year. Compute the sales price per unit, the average cost per unit for direct materials used, direct labor, and the average cost per unit for manufacturing overhead.
4. Assume that in the following year the company expects to produce/sell 50,000 units and manufacturing overhead is fixed. What average cost per unit and total cost would you expect to be incurred for direct materials? For direct labor? For manufacturing overhead? (Assume that direct materials and direct labor are variable costs.)
5. Prepare a traditional income statement AND a contribution margin income statement implementing all of the information that you have figured out to this point utilizing 50,000 units produced and sold.
6. As the manager in charge of production costs, explain to the president the reason for any difference in average cost per unit between (3) and (4) above.
| 1.Beginning raw materials | 40000 | |||
| Add: Purchases | 290000 | |||
| Less: Ending raw materials | -10000 | |||
| Raw materials consumed | 320000 | |||
| Direct labor(683000-270000-320000) | 93000 | Solved 1st | ||
| Manufacturing overhead | 270000 | |||
| Total manufacturing costs for the year | 683000 | |||
| Add: Beginning WIP | 42000 | Solved 4th | ||
| Less: Ending WIP | -35000 | |||
| Cost of goods manufactured | 690000 | Solved 3d | ||
| Add: Beginning Finished goods | 50000 | |||
| Cost of goods available for sale | 740000 | |||
| Less: Ending finished goods | -80000 | Solved 2nd | ||
| Cost of goods sold | 660000 |
| 2..Traditional income statement | ||
| Sales | 1000000 | |
| Less:Cost of goods sold | -660000 | |
| Gross margin | 340000 | |
| Less: Operating expenses: | ||
| Selling and administrative salaries | 110000 | |
| Advertising expense | 80000 | |
| Sales Commissions (60000/1000000)=6% | 60000 | -250000 |
| Net operating Income | 90000 |
| 3.. | Per unit | 4.for 50000 units | Total $ | ||
| Selling price/unit | 1000000/40000 | 25 | |||
| Direct materials used | 320000/40000= | 8 | 8 | 400000 | |
| Direct Labor | 93000/40000= | 2.325 | 2.325 | 116250 | |
| MOH | 270000/40000= | 6.75 | 5.4 | 270000 | |
| Total cost | 17.075 | 15.725 | 786250 |
| 5.Traditional income statement | 5.Contribution Margin income statement | |||||
| Sales | 50000 units | 1250000 | Sales | 50000 units | 1250000 | |
| Less:Cost of goods sold(50000*15.725) | -786250 | Less:Variable Cost of goods sold(50000*(8+2.325)) | -516250 | |||
| Gross margin | 463750 | Gross Manufacturing margin | 733750 | |||
| Less: Operating expenses: | Less: Variable selling commn. | -75000 | ||||
| Selling and administrative salaries | 110000 | Contribution marhin | 658750 | |||
| Advertising expense | 80000 | Less: Fixed expenses | ||||
| Sales Commissions (1250000*6%) | 75000 | -265000 | MOH | 270000 | ||
| Net operating Income | 198750 | Selling and administrative salaries | 110000 | |||
| Advertising expense | 80000 | -460000 | ||||
| Net operating Income | 198750 |
| 6. The difference in average cost/unit in 3 & 4 above is due to the difference in fixed manufacturing overheads absorption per unit-- ie. As more no.of units(50000) is produced, lesser incidence of cost /unit . |
| Diff. in total av. Cost/unit-17.075-15.725 =1.35 ---is the same as difference in fixed MOH absorption /unit ie. 6.75-5.4=1.35 |
