The following data from the just completed year are taken from the accounting records of Floral Company: Sales 3,000,000 Direct labor cost 550,000 Raw material purchases 1,500,000 Selling expenses 320,000 Administrative expenses 235,000 Manufacturing overhead 220,000. Beginning of Year Inventories 53,000 End of Year Raw materials 35,000 Work in process, beg 85,000 Work in process, end 58,000 Finished goods, beg 158,000 Finished goods, end 185,000 Required: 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.
The following data from the just completed year are taken from the accounting records of Floral Company: Sales 3,000,000 Direct labor cost 550,000 Raw material purchases 1,500,000 Selling expenses 320,000 Administrative expenses 235,000 Manufacturing overhead 220,000.
Beginning of Year Inventories 53,000
End of Year Raw materials 35,000
Work in process, beg 85,000
Work in process, end 58,000
Finished goods, beg 158,000
Finished goods, end 185,000
Required:
Prepare an income statement.
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