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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Preparation of Income Statement: Manufacturing Firm

Laworld Inc. manufactures small camping tents. Last year, 200,000 tents were made and sold for $60 each. Each tent includes the following costs:

Chapter 2, Problem 54P, Preparation of Income Statement: Manufacturing Firm Laworld Inc. manufactures small camping tents.

The only selling expenses were a commission of $2 per unit sold and advertising totaling $100,000. Administrative expenses, all fixed, equaled $300,000. There were no beginning or ending finished goods inventories. There were no beginning or ending work-in-process inventories.

Required:

  1. 1. Calculate the product cost for one tent. Calculate the total product cost for last year.
  2. 2. CONCEPTUAL CONNECTION Prepare an income statement for external users. Did you need to prepare a supporting statement of cost of goods manufactured? Explain.
  3. 3. CONCEPTUAL CONNECTION Suppose 200,000 tents were produced (and 200,000 sold) but that the company had a beginning finished goods inventory of 10,000 tents produced in the prior year at $40 per unit. The company follows a first-in, first-out policy for its inventory (meaning that the units produced first are sold first for purposes of cost flow). What effect does this have on the income statement? Show the new statement.

1.

To determine

Calculate the amount of product cost for one tent. Also, calculate the total amount of product cost for the last year.

Explanation

Product Cost:

The amount of cost whether direct or indirect incurred by the company in order to produce a product is known as product cost. It also means the cost incurred by the company in acquiring a product and making it available for sale.

Use the following formula to calculate the product cost for one tent:

Product cost of one tent=(Direct material+Direct labor+Manufacturing overhead)

Substitute $18 for direct material, $12 for direct labor and $16 for manufacturing overhead in the above formula.

Product cost of one tent=$18+$12+$16=$46

Therefore, the product cost for one tent is $46

2.

To determine

Prepare an income statement for the external users. Describe whether it is required to prepare supporting the statement of cost of goods manufactured or not.

3.

To determine

Describe the effect of beginning finished goods inventory on the income statement.

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