Part A: Stars, Inc. is a manufacturing company that has made toys for children for three years. The CEO Mr. Jones is very frustrated with the company's performance and has hired Mr. Kaye as the company's new accountant. Mr. Jones provides the following information to Mr. Kaye. Year 1 Year 2 Year 3 Sales in units 60,000 40,000 40,000 Production in units 60,000 50,000 60,000 Price $ 10 10 10 The company's variable manufacturing cost (including direct materials, direct labor, and variable manufacturing overhead) is $5 per unit. Fixed manufacturing overhead is $120,000 per year. The variable selling and administrative expense is $1 per unit and the fixed selling and administrative expense is $100,000 per year. The company uses the LIFO (last-in first-out) inventory flow assumption that the newest units in inventory are sold first. After reviewing all information provided, Mr. Kaye prepared one income statement for Mr. Jones, with the purpose of discovering the existing problems within the company and gathering information for future decision making.

Part A: Stars, Inc. is a manufacturing company that has made toys for children for three years. The CEO Mr. Jones is very frustrated with the company's performance and has hired Mr. Kaye as the company's new accountant. Mr. Jones provides the following information to Mr. Kaye. Year 1 Year 2 Year 3 Sales in units 60,000 40,000 40,000 Production in units 60,000 50,000 60,000 Price $ 10 10 10 The company's variable manufacturing cost (including direct materials, direct labor, and variable manufacturing overhead) is $5 per unit. Fixed manufacturing overhead is $120,000 per year. The variable selling and administrative expense is $1 per unit and the fixed selling and administrative expense is $100,000 per year. The company uses the LIFO (last-in first-out) inventory flow assumption that the newest units in inventory are sold first. After reviewing all information provided, Mr. Kaye prepared one income statement for Mr. Jones, with the purpose of discovering the existing problems within the company and gathering information for future decision making.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter4: Income Measurement And Accrual Accounting

Section: Chapter Questions

Problem 4.11AMCP

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