Question

Flow of Costs and Income Statement

Technology Accessories Inc. is a designer, manufacturer, and distributor of accessories for consumer electronic products. Early in 20Y3, the company began production of a leather cover for tablet computers, called the iLeather. The cover is made of stitched leather with a velvet interior and fits snugly around most tablet computers. In January, $780,000 was spent on developing marketing and advertising materials. For the first six months of 20Y3, the company spent an additional $1,406,000 promoting the iLeather. The product was ready for manufacture on January 21, 20Y3.

Technology Accessories Inc. uses a job order cost system to accumulate costs for the iLeather. Direct materials unit costs for the iLeather are as follows:

Leather	$10.00
Velvet	5.00
Packaging	0.40
Total	$15.40

The actual production process for the iLeather is fairly straightforward. First, leather is brought to a cutting and stitching machine. The machine cuts the leather and stitches an exterior edge into the product. The machine requires one hour per 130 iLeathers.

After the iLeather is cut and stitched, it is brought to assembly, where assembly personnel affix the velvet interior and pack the iLeather for shipping. The direct labor cost for this work is $0.50 per unit.

The completed packages are then sold to retail outlets through a sales force. The sales force is compensated by a 20% commission on the wholesale price for all sales.

Total completed production was 510,000 units during the year. Other information is as follows:

Number of iLeather units sold in 20Y3	470,000
Wholesale price per unit	$40

Factory overhead cost is applied to jobs at the rate of $1,300 per machine hour. There were an additional 22,000 cut and stitched iLeathers waiting to be assembled on December 31, 20Y3.

In your computations, if required, round interim per unit costs to two decimal places and final answers to the nearest whole dollar.

Required:

1. Prepare an annual income statement for the iLeather product.

Technology Accessories Inc.
Income Statement
For the Year Ended December 31, 20Y3
		$
		$
Selling Expenses:
	$
Total Selling Expenses
		$

2. Determine the balances in the finished goods and work in process inventories for the iLeather product on December 31, 20Y3.

Finished Goods	$
Work in Process	$

Answer 1

1.	TECHNOLOGY ACCESSORIES INC.
	Income Statement
	For the Year Ended December 31, 20Y3
		Sales								$   18,800,000
		Cost of goods sold								12,173,000
		Gross profit								$     6,627,000
		Selling expenses:
		Salespersons commissions			20% of Sales			$     3,760,000
		Advertising expenses						1,406,000
		Advertising design						780,000
		Total selling expenses								5,946,000
		Income from operations								$        681,000
		Cost of goods sold supporting calculation:
		Manufacturing cost per unit:
		Direct materials:
			Leather			$           10.00
			Velvet (for interior)			5.00
			Packaging			0.40
			Total direct materials					$            15.40
		Direct labor						0.50
		Factory overhead		$1,300/130 ileather				10.00
		Total manufacturing cost per unit						$            25.90
		x Number of units sold						470,000
		Cost of goods sold						$   12,173,000
2.
	Finished goods inventory balance, December 31, 20Y3:
		Units produced				510,000
		Less: Units sold				470,000
		Units remaining in inventory				40,000
		x Manufacturing cost per unit				$25.90
		Balance				$    1,036,000
	Work in process inventory balance, December 31, 20Y3:
		Additional units waiting for assembly				22,000
		x Direct materials and overhead per unit				$25.40
		Balance				$       558,800