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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Flow of costs and income statement

Technology Accessories Inc. is a designer, manufacturer, and distributor of accessories for consumer electronic products. Early in 20Y3, the company began production of a leather cover for tablet computers, called the iLeather. The cover is made of stitched leather with a velvet interior and fits around most tablet computers. In January, $750,000 was spent on developing marketing and advertising materials. For the first six months of 20Y2, the company spent $1,400,000 promoting the iLeather. The product was ready for manufacture on January 21, 20Y3.

Technology Accessories Inc. uses a job order cost system to accumulate costs for the iLeather. Direct materials unit costs for the iLeather are as follows:

Leather $10.00
Velvet 5.00
Packaging 0.40
Total $15.40

The actual production process for the iLeather is fairly straightforward. First, leather is brought to a cutting and stitching machine. The machine cuts the leather and stitches an exterior edge into the product. The machine requires one hour per 125 iLeathers.

After the iLeather is cut and stitched, it is brought to assembly, where assembly personnel affix the velvet interior and pack the iLeather for shipping The direct labor cost for this work is $0.50 per unit.

The completed packages are then sold to retail outlets through a sales force. The sales force is compensated by a 20% commission on the wholesale price for all sales.

Total completed production was 500,000 units during the year. Other information is as follows:

Number of iLeather units sold in 20Y3 460,000
Wholesale price per unit $40

Factory overhead cost is applied to jobs at the rate of $1,250 per machine hour. An additional 22,000 cut and stitched iLeathers were wailing to be assembled on December 31, 20Y3.

Instructions

1. Prepare an annual income statement for the iLeather product, including supporting calculations, from the information provided.

2. Determine the balances in the finished goods and work in process inventories for the iLeather product on December 31, 20Y3.

(1)

To determine

Income statement:

The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

To prepare: annual income statement of Company TA.

Explanation

The annual income statement is prepared as follows:

Company TA
Income statement
For the month ended December 31, 20Y3
  Amount
($)
Amount
($)
Amount
($)
SalesTable (2)     18,400,000
Less: Cost of goods soldTable (4)     11,914,000
Gross profit     6,486,000
Less:      
Selling expenses:      
Salesperson commission(1) 3,680,000    
Advertising design 750,000    
    Shipping expenses 1,400,000    
Total selling expenses   5,830,000  
Total operating expenses     5,830,000
Income from operations     656,000

Table (1)

Working notes:

Sales revenue is calculated as below:

  Amount
Number of ileathers sold (units) 460,000
× Selling price per ileather $40
Sales revenue $18,400,000

Table (2)

Cost per unit is calculated as follows:

  Amount ($) Amount ($)
Direct materials:    
Leather 10...

(2)

To determine
the ending balance, December 31 20Y3, in the work in process and finished goods inventories.

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