Yolo Windows, a manufacturer of windows for commercial buildings, reports the following account information for last year (all costs are in thousands of dollars). Information on January 1 (Beginning): Direct materials inventory $ 88 Work-in-process inventory 116 Finished goods inventory 1,680 Information for the year: Administrative costs $ 3,660 Direct labor 12,900 Direct materials purchases 8,210 Factory and machine depreciation 11,640 Factory supervision 772 Factory utilities 929 Indirect factory labor 2,920 Indirect materials and supplies 692 Marketing costs 1,480 Property taxes on factory 287 Sales revenue 45,900 Information on December 31 (Ending): Direct materials inventory $ 90 Work-in-process inventory 139 Finished goods inventory 1,510 Required: Prepare a cost of goods sold statement. Prepare an income statement.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Yolo Windows, a manufacturer of windows for commercial buildings, reports the following account information for last year (all costs are in thousands of dollars).
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Information on January 1 (Beginning): |
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Direct materials inventory |
$ |
88 |
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|
Work-in-process inventory |
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116 |
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|
Finished goods inventory |
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1,680 |
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Information for the year: |
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|
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Administrative costs |
$ |
3,660 |
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Direct labor |
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12,900 |
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Direct materials purchases |
|
8,210 |
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|
Factory and machine |
|
11,640 |
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|
Factory supervision |
|
772 |
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Factory utilities |
|
929 |
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Indirect factory labor |
|
2,920 |
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Indirect materials and supplies |
|
692 |
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Marketing costs |
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1,480 |
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Property taxes on factory |
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287 |
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Sales revenue |
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45,900 |
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Information on December 31 (Ending): |
|
|
|
|
Direct materials inventory |
$ |
90 |
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|
Work-in-process inventory |
|
139 |
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|
Finished goods inventory |
|
1,510 |
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Required:
- Prepare a cost of goods sold statement.
- Prepare an income statement.
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