Required: a- Prepare cost of goods manufactured statement b- Prepare 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.
ABC company has the following data:
Revenue $450,000
Beginning inventory of direct materials, January 1, 2015 24,000
Purchases of direct materials 151,000
Ending inventory of direct materials, December 31, 2015 18,000
Direct manufacturing labor 27,000
Indirect
Beginning inventory of finished goods, January 1, 2015 43,000
Cost of goods manufactured 234,000
Ending inventory of finished goods, December 31, 2015 48,000
Operating costs 152,000
No beginning work in process inventory
Required:
a- Prepare cost of goods manufactured statement
b- Prepare income statement
Step by step
Solved in 2 steps
