Koufax Materials Corporation produces plastic products for home appliances and electronics. The financial department has produced the following information for the year ended December 31. Administrative salaries $ 2,627,000 Depreciation on the administrative building 1,144,000 Depreciation on the manufacturing plant 1,752,000 Direct labor 4,694,500 Direct materials inventory, January 1 1,071,200 Direct materials inventory, December 31 1,237,000 Direct materials purchased during the year 8,958,000 Distribution costs 659,000 Finished goods inventory, January 1 1,644,000 Finished goods inventory, December 31 1,371,500 Indirect labor 544,000 Insurance (on manufacturing plant) 55,200 Legal fees 498,300 Maintenance (on the manufacturing plant) 217,400 Manufacturing plant utiities 786,100 Marketing costs 751,250 Other manufacturing plant costs 632,880 Sales revenue 22,656,920 Taxes (on manufacturing plant and property) 217,600 Work-in-process inventory, January 1 405,250 Work-in-process inventory, December 31 398,700 Required: a. Prepare a cost of goods manufactured and sold statement. b. 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.
Koufax Materials Corporation produces plastic products for home appliances and electronics. The financial department has produced the following information for the year ended December 31.
| Administrative salaries | $ | 2,627,000 |
| 1,144,000 | ||
| Depreciation on the manufacturing plant | 1,752,000 | |
| Direct labor | 4,694,500 | |
| Direct materials inventory, January 1 | 1,071,200 | |
| Direct materials inventory, December 31 | 1,237,000 | |
| Direct materials purchased during the year | 8,958,000 | |
| Distribution costs | 659,000 | |
| Finished goods inventory, January 1 | 1,644,000 | |
| Finished goods inventory, December 31 | 1,371,500 | |
| Indirect labor | 544,000 | |
| Insurance (on manufacturing plant) | 55,200 | |
| Legal fees | 498,300 | |
| Maintenance (on the manufacturing plant) | 217,400 | |
| Manufacturing plant utiities | 786,100 | |
| Marketing costs | 751,250 | |
| Other |
632,880 | |
| Sales revenue | 22,656,920 | |
| Taxes (on manufacturing plant and property) | 217,600 | |
| Work-in-process inventory, January 1 | 405,250 | |
| Work-in-process inventory, December 31 | 398,700 | |
Required:
a. Prepare a cost of goods manufactured and sold statement.
b. Prepare an income statement.
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