Question

W. W. Phillips Company produced 4,000 leather recliners during the year. These recliners sell for $400 each. Phillips had 500 recliners in finished goods inventory at the beginning of the year. At the end of the year, there were 700 recliners in finished goods inventory. Phillips’ accounting records provide the following information:

Purchases of raw materials	$320,000
Beginning materials inventory	46,800
Ending materials inventory	66,800
Direct labor	200,000
Indirect labor	40,000
Rent, factory building	42,000
Depreciation, factory equipment	60,000
Utilities, factory	11,900
Salary, sales supervisor	90,000
Commissions, salespersons	180,000
General administration	300,000
Beginning work-in-process inventory	13,040
Ending work-in-process inventory	14,940
Beginning finished goods inventory	80,000
Ending finished goods inventory	114,100

	Required:
1.	Prepare a statement of cost of goods manufactured.
2.	Compute the average cost of producing one unit of product in the year.
3.	Prepare an income statement for external users.

Refer to the list below for the exact wording of a label or an amount description within your statements.

Labels
Add
Less
Manufacturing overhead
Selling expenses
Amount Descriptions
Beginning work in process
Commissions
Cost of goods manufactured
Cost of goods sold
Depreciation, factory equipment
Direct materials
Direct labor
Ending work in process
General administration expense
Gross margin
Indirect labor
Operating income
Operating loss
Rent, factory building
Sales
Sales supervisor’s salary
Total cost of product
Utilities, factory

1. Prepare a statement of cost of goods manufactured. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your statement. If an amount is negative, first enter a minus (-) sign.

W. W. Phillips Company

Statement of Cost of Goods Manufactured

For Last Year

3. Prepare an income statement for external users. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your statement.

W. W. Phillips Company

Income Statement

For Last Year

Answer 1

1.   

W. W. Phillips Company

Statement of Cost of Goods Manufactured

  For Last Year

  Direct materials................................................................   $300,000*

  Direct labor......................................................................   200,000

  Manufacturing overhead:

  Indirect labor.............................................................     $40,000

  Rent, factory building................................................     42,000

  Depreciation, factory equipment...............................     60,000

  Utilities, factory.........................................................   11,900      153,900

  Total cost of product.......................................................   $653,900

  Beginning work in process...............................................   13,040

  Ending work in process...................................................   (14,940)

  Cost of goods manufactured.....................................   $652,000

  *Direct materials used = $46,800 + $320,000 – $66,800 = $300,000

2. Average cost of one unit of product = = $163

3.   

W. W. Phillips Company

Income Statement

  For Last Year

  Sales ($400 × 3,800*)......................................................     $1,520,000

  Cost of goods sold...........................................................      617,900**

  Gross margin....................................................................     $ 902,100

  Selling expense:

  Sales supervisor’s salary.............................................     $   90,000

      Commissions..............................................................        180,000   270,000

  General administration expense.......................................      300,000

  Operating income.......................................................     $ 332,100

  *Units sold = 4,000 + 500 – 700 = 3,800

  **Cost of goods sold = $652,000 + $80,000 – $114,100 = $617,900