Question

Income Statement

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 53,700 units will be produced, with the following total costs:

Direct materials	?
Direct labor	72,000
Variable overhead	23,000
Fixed overhead	250,000

Next year, Pietro expects to purchase $127,500 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:

	Direct materials Inventory	Work-in-Process Inventory
Beginning	$6,000	$13,300
Ending	$5,900	$15,300

Next year, Pietro expects to produce 53,700 units and sell 53,000 units at a price of $17.00 each. Beginning inventory of finished goods is $42,500, and ending inventory of finished goods is expected to be $34,000. Total selling expense is projected at $29,500, and total administrative expense is projected at $112,500.

Required:

1. Prepare an income statement in good form. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35.

Pietro Frozen Foods, Inc.
Income Statement
For the Coming Year
			Percent
Sales		$	%
Cost of goods sold			%
Gross margin		$	%
Less operating expenses:
Selling expenses	$
Administrative expenses			%
Operating income		$	%

2. What if the cost of goods sold percentage for the past few years was 50.17 percent? Management's reaction might be:

Answer 1

Solution

Pietro Frozen Foods, Inc.
Income Statement
For the Coming Year
			Percent
Sales		$ 901,000	100.00%
Cost of goods sold		$ 479,100	53.17%
Gross margin		$ 421,900	46.83%
Less operating expenses:
Selling expenses	$     29,500
Administrative expenses	$   112,500	$ 142,000	15.76%
Operating income		$ 279,900	31.07%

.

Working for cost of goods sold

Cost of Goods Manufactured and Cost of goods sold
Beginning Work in process			$        13,300
Direct materials used
Raw material Inventory Beginning	$          6,000
Raw material Purchased	$     127,500
Raw material available for use	$     133,500
Less: Raw material Inventory Ending	$          5,900
Direct Material Used		$    127,600
Direct labor		$      72,000
Manufacturing Overheads		$    273,000
Total manufacturing cost incurred during the year			$     472,600
Total manufacturing cost to account for			$     485,900
Less: Ending WIP inventory			$        15,300
Cost of goods manufactured			$     470,600
Add: Beginning Finished goods inventory			$        42,500
Goods available for sale			$     513,100
Less: Ending Finished goods inventory			$        34,000
Cost of goods sold			$     479,100