Question

In: Accounting

George Fine Company produces shoes and wallets. Selected data for the past year follow: Shoes Wallets...

George Fine Company produces shoes and wallets. Selected data for the past year follow:

Shoes Wallets

Production (units) 90,000 190,000

Sales (units) 80,000 200,000

Selling price £7 £9

Direct labour hours 80,000 60,000

Manufacturing costs: £ £

Direct Materials per unit 0.75 0.5

Direct Labour per unit 2.5 2.0

Variable overheads per unit 0.20 0.13

Fixed overhead:

Direct 70,000 70,000

Non-manufacturing costs:

Variable selling 30,000 60,000

Direct fixed selling 60,000 65,000

Budgeted fixed overhead for the year, £140,000, equalled the actual fixed overhead. Fixed overhead is assigned to products using a plantwide rate based on expected direct labour hours, which were 140,000. The company had 10,000 wallets in inventory at the beginning of the year. These wallets had the same unit cost as the wallets produced during the year. “

Required:

a) “Prepare an income statement using marginal costing.”

b) “Prepare an income statement using absorption costing.”

c) “Prepare a reconciliation statement between Absorption and Marginal costing profit figures calculated above.”

Expert Solution

George Fine Company produces shoes and wallets. Selected data for the past year follow:

Shoes Wallets

Production (units) 90,000 190,000

Sales (units) 80,000 200,000

Selling price £7 £9

Direct labour hours 80,000 60,000

Manufacturing costs: £ £

Direct Materials per unit 0.75 0.5

Direct Labour per unit 2.5 2.0

Variable overheads per unit 0.20 0.13

Fixed overhead:

Direct 70,000 70,000

Non-manufacturing costs:

Variable selling 30,000 60,000

Direct fixed selling 60,000 65,000

Budgeted fixed overhead for the year, £140,000, equalled the actual fixed overhead. Fixed overhead is assigned to products using a plantwide rate based on expected direct labour hours, which were 140,000. The company had 10,000 wallets in inventory at the beginning of the year. These wallets had the same unit cost as the wallets produced during the year. “

Required:

a) “Prepare an income statement using marginal costing

,

,	Shoes	Wallets
Sales ( sales units * selling price )	560000	1800000
Marginal cost:
Direct Materials	60000	100000
Direct Labour	200000	400000
Variable overheads	16000	26000
Variable selling	30000	60000
Contribution margin	254000	1214000
Fixed cost:
Direct*	80000	60000
Direct fixed selling	60000	65000
Operating profit	114000	1089000

.

*Fixed overhead is assigned to products using a plant wide rate based on expected direct labour hours, which were 140,000.

Fixed Overhead rate = 140000 / 140000 = 1

For Shoes = 1 * 80000 dl hrs = 80000

For Wallets = 1 * 60000 dl hrs = 60000

.

b) “Prepare an income statement using absorption costing

.

,	Shoes	Wallets
Sales ( sales units * selling price )	560000	1800000
Cost of goods sold:
Direct Materials	60000	100000
Direct Labour	200000	400000
Variable overheads	16000	26000
Direct Fixed cost	71111*	63158**
Gross profit	212889	1210842
Non- manufacturing cost:
Variable selling	30000	60000
Direct fixed selling	60000	65000
Operating profit	122889	1085842

.

*Fixed manufacturing cost allocated to shoes = $80000 for total production of 90000 units, per units = 80000 / 90000 = 0.8889

For sold units = 0.88888 * 80000 = 71111

.

**Fixed manufacturing cost allocated to Wallet = $60000 for total production of 190000 units, per units = 60000 / 190000 = 0.3158

For sold units from current period production = 0.31579 * 190000 = 60000

For sold units from beginning units = 0.31579 * 10000 = 3158

Total Fixed manufacturing cost = 60000 + 3158 = 63158

.

c) “Prepare a reconciliation statement between Absorption and Marginal costing profit figures calculated above”

.

Shoes

	Shoes
Marginal costing Profit	114000
Add Fixed direct cost allocated to ending inventory	0.8889*10000= 8889
Absorption costing profit	122889

.

Wallets

Marginal costing Profit

1089000

Less: Fixed direct cost incurred to beginning inventory

0.31579*10000= 3158

Absorption costing profit

1085842

*If production greater than sale, the absorption costing profit will be higher than the marginal costing profit, and vise verse.. because some portion of direct fixed cost are allocated to ending inventory or ( some portion are incurred from beginning inventory to current period incme statement )

ekkarill92 answered 2 years ago

Selected data concerning operations of Cascade Manufacturing Company for the past fiscal year follow: Raw materials...

Selected data concerning operations of Cascade Manufacturing Company for the past fiscal year follow: Raw materials used.........................................................................................................................................$400,000 Total manufacturing costs charged to production during the year (includes raw materials, direct labor, and manufacturing overhead applied at a rate of 60 percent of direct labor costs) .....................................................................................$731,000 Cost of goods available for sale .....................................................................................................................$936,000 Selling and general expenses......................................................................................................................... 40,000 Inventories _______________________________ Beginning Ending Raw materials ...................................................... $70,000 $80,000 Work-in-process ...................................................... $85,000 $30,000 Finished goods ...................................................... $90,000 $110,000...

Selected data concerning the past year’s operations of the Ozarks Manufacturing Company are as follows:

Selected data concerning the past year’s operations of the Ozarks Manufacturing Company are as follows:InventoriesBeginningEndingRaw material$61,000$81,000Work in process80,00030,000Finished goods90,000110,000Other data:Direct material used$334,000Total manufacturing costs charged to productionduring the year (includes direct material,direct labor, and manufacturing overheadapplied at a rate of 60% of direct-labor cost)686,000Cost of goods available for sale826,000Selling and administrative expenses30,500Required:1. What was the cost of raw materials purchased during the year?2. What was the cost of goods sold during the year?

Felix's Fine Jewelry produces fine jewelry for department stores. The following costs incurred by the company...

Felix's Fine Jewelry produces fine jewelry for department stores. The following costs incurred by the company may be classified as direct materials, direct labor, manufacturing overhead, or period costs. Classify the costs and total by classification. Prepare an operating income statement which shows the deductions of expense in terms of total classification by category: direct materials, direct labor, manufacturing overhead, or period costs. Assume Felix's Fine Jewelry's revenue for the period was $8,000,000, and there is no change in ending...

Selected data concerning the past year’s operations of the Altek Manufacturing Company are as follows: Inventories...

Selected data concerning the past year’s operations of the Altek Manufacturing Company are as follows: Inventories ($) Beginning Ending Raw materials 71,000 81,000 Work in Process 80,000 30,000 Finished Goods 90,000 110,000 Other Data: Direct Materials Used ---------------------------------------------- $ 326,000 Total Manufacturing Costs Charged to production during the year (includes direct material, direct labour, and manufacturing overhead applied at a rate of 60% of direct-labour cost) ----------------------------------$ 686,000 Cost of Goods Available for Sale -----------------------------------$ 826,000 Selling and Administration Expenses...

Selected data concerning the past year’s operations of the Ozarks Manufacturing Company are as follows: Inventories...

Selected data concerning the past year’s operations of the Ozarks Manufacturing Company are as follows: Inventories Beginning Ending Raw material $ 61,000 $ 81,000 Work in process 80,000 30,000 Finished goods 90,000 110,000 Other data: Direct material used $ 326,000 Total manufacturing costs charged to production during the year (includes direct material, direct labor, and manufacturing overhead applied at a rate of 60% of direct-labor cost) 686,000 Cost of goods available for sale 826,000 Selling and administrative expenses 31,000 1....

Alard Company produces blenders and coffee makers. During the past year, the company produced and sold...

Alard Company produces blenders and coffee makers. During the past year, the company produced and sold 65,000 blenders and 75,000 coffee makers. Fixed costs for Alard totaled $340,000, of which $184,000 can be avoided if the blenders are not produced and $142,500 can be avoided if the coffee makers are not produced. Revenue and variable cost information follows: Blenders Coffee Makers Selling price per appliance $24 $29 Variable expenses per appliance 18 27 Required: 1. Prepare segmented income statements. Separate...

Selected comparative financial statements of Korbin Company follow.

Selected comparative financial statements of Korbin Company follow. KORBIN COMPANY Comparative Income Statements For Years Ended December 31, 2019, 2018, and 2017 2019 2018 2017 Sales $ 484,546 $ 371,202 $ 257,600 Cost of goods sold 291,697 233,486 164,864 Gross profit 192,849 137,716 92,736 Selling expenses 68,806 51,226 34,003 Administrative expenses 43,609 32,666 ...

Salud Company reports the following information. Selected Annual Income Statement Data Selected Year-End Balance Sheet Data...

Salud Company reports the following information. Selected Annual Income Statement Data Selected Year-End Balance Sheet Data Net income $ 450,000 Accounts receivable increase $ 44,400 Depreciation expense 93,500 Prepaid expenses decrease 16,500 Gain on sale of machinery 24,800 Accounts payable increase 8,800 Wages payable decrease 2,500 Use the indirect method to prepare the operating activities section of its statement of cash flows for the year ended December 31. (Amounts to be deducted should be indicated with a minus sign.) Statement...

Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2019 follow:

Spring Manufacturing Company makes two components identified as C12 and D57. Selected budgetary data for 2019 follow: Finished Components C12 D57 Requirements for each finished component: RM 1 10 pounds 8 pounds RM 2 0 4 pounds RM 3 2 pounds 1 pound Direct labor 2 hours 3 hours Product information: Sales price $ 180 $ 240 Sales (units) 12,000 9,000 Estimated beginning inventory (units) 450 190 Desired ending inventory (units) 300 200 Direct Materials Information RM1 RM2 RM3 Cost...

Assigning Traceable Fixed Expenses Selected data for Miller Company, which operates three departments, follow: Department A...

Assigning Traceable Fixed Expenses Selected data for Miller Company, which operates three departments, follow: Department A Department B Department C Inventory $80,000 $288,000 $112,000 Equipment (average cost) $720,000 $432,000 $288,000 Payroll $405,000 $360,000 $135,000 Square feet of floor space 18,000 9,000 3,000 During the year, the company’s fixed expenses included the following: Depreciation on equipment $140,000 Real estate taxes 48,000 Personal property taxes (on inventory and equipment) 28,800 Personnel department expenses 225,000 Assume that the property tax rate is the...