Measuring unit costs - period costs and product costs. (ANSWER IS ON CHEGG WITH DIFFERENT FIGURES BUT I DONT HAVE ACCESS)
Early in the year, Jane Scott founded Scott Engineering Co. for the purpose of manufacturing a special plumbing device that she had designed. Shortly after year-end, the company’s accountant had a long lasting flu, and no year-end financial statements were prepared. However, the accountant had correctly determined the year-end inventories at the following amounts:
Materials $46,000
Work in process $31,500
Finished goods (3,000 units) $88,500
As this was the first year of operations, there were no beginning inventories.
While the accountant was in the hospital, Scott improperly prepared the following income statement from the company’s accounting records:
Net sales $610,600
Cost of goods sold:
Purchases if direct materials $181,000
Direct labor assigned to production $110,000
Manufacturing overhead applied to production $170,000
Selling expenses $ 70,600
Administrative expenses $132,000
Total costs $663,600
Net loss for year $ (53,000)
Scott was very disappointed in these operating results. She stated, “Not only did we lose more than $50,000 this year, but look at our production costs! We sold 10,000 units this year at a cost of $663,600; that amounts to a cost of $66.36 per unit. I know some of our competitors are able to manufacture similar plumbing devises for about $40 per unit. I don’t need an accountant to know that this business is a failure.”
- Prepare a schedule of the cost of finished goods manufactured for the year. (As there were no beginning inventories, your schedule will start with “Manufacturing costs assigned to production”.) Show a supporting computation for the cost of direct materials used during the year. (3 pts.)
- Compute the average cost per-unit manufactured. (Round your answer to two decimal places.) (2pts.)
- Prepare a correct income statement for the year, using the multiple-step format. If the company has earned any operating income, assume an income tax rate of 20 percent. (3 pts.)
- Explain whether you agree or disagree with Scott’s remarks that the business is unprofitable and that its unit cost of production ($66.36, according to Scott) is much higher than that of competitors (around $40). If you disagree with Scott, explain any errors or shortcomings in her analysis. Give at least three different reasons. Be clear.( 3 pts.)
/total 11 pts
Please find below prepared tables for question a, b and c.
Scott Engineering Co.
Schedule of the Cost of Finished Goods Manufactured
For the year ended December 31,20xx
Manufacturing costs assigned to production: |
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Direct materials used (1) |
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Direct labor |
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Manufacturing overhead |
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Total manufacturing costs |
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Less: Work in process, end of the year |
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Cost of finished goods manufactured |
|
|
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Purchases of direct materials |
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Less: Materials inventory, end of year |
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Direct materials used |
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b. |
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Cost of finished goods manufactured (part a.) |
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Number of units manufactured |
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Average cost per unit manufactured |
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c.
Scott Engineering Co.
Income Statement
For the year ended December 31,20xx
Net Sales
Calculate Cost of goods sold:
Add: Cost of finished goods manufacture (part a)
Less: Ending inventory of finished goods
Cost of goods sold
Gross profit
Operating expenses:
Selling expenses
Administrative expenses
Total operating expenses
Operating income
Income taxes
Net Income (profit or loss)