Question

Vinson Co. manufactures and sells one product. Assume the selling price for each item is $225/per unit. The following information pertains to the company’s first two years of operation:

Variable Costs Per Unit:

Manufacturing:

Direct Materials $34/unit

Direct Labor $23/unit

Variable Selling and Administrative $4/unit

Variable Manufacturing Overhead $6/unit

Fixed Costs:

Fixed Manufacturing Overhead $720,000

Fixed Selling and Administrative $120,000

Additionally, Vinson Company provides you with the following inventory flow information in terms of units for YEAR 1 & YEAR 2:

YEAR 1:

Beginning Inventory (units): 0

Units Produced: 120,000

Units Sold: 90,000

Ending Inventory (units): 30,000

YEAR 2:

Beginning Inventory (units): 30,000

Units Produced: 100,000

Units Sold: 115,000

Ending Inventory (units): 15,000

A. FOR YEAR 1 AND YEAR 2 PREPARE THE COMPANY'S TRADITIONAL INCOME STATEMENTS

Answer 1

Traditional Income Statement	Year 1
	Amount in $
Sales	20,250,000	( 90,000 x 225 )
Cost of Goods Sold:
Beginning Inventory	-
Add: Cost of Goods Manufactured	8,280,000	( ( 34 + 23 + 6 ) x 120,000 ) + 720,000
Cost of Goods Available for Sale	8,280,000
Less :Ending Inventory	2,070,000	(8,280,000 x 30,000 ) /120,000
Total Cost of Goods Sold	6,210,000
Gross Profit	14,040,000
Less :Fixed Selling and administrative expenses	120,000
Less :Variable Selling and administrative expenses	360,000	(90,000 x 4 )
Net Operating Income	13,560,000
Traditional Income Statement	Year 2
	Amount in $
Sales	25,875,000	( 115,000 x 225 )
Cost of Goods Sold:
Beginning Inventory	2,070,000
Add: Cost of Goods Manufactured	7,020,000	( ( 34 + 23 + 6 ) x 100,000 ) + 720,000
Cost of Goods Available for Sale	9,090,000
Less :Ending Inventory	1,053,000	( 7,020,000 x 15,000 ) / 100,000
Total Cost of Goods Sold	8,037,000
Gross Profit	17,838,000
Less :Fixed Selling and administrative expenses	120,000
Less :Variable Selling and administrative expenses	460,000	(115,000 x 4 )
Net Operating Income	17,258,000