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, $750,000 was spent on developing marketing and advertising materials. For the first six months of 20Y3, the company spent an additional $1,400,000 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 125 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 500,000 units during the year. Other information is as follows:

Number of iLeather units sold in 20Y3	460,000
Wholesale price per unit	$40

Factory overhead cost is applied to jobs at the rate of $1,250 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.

Required:

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

Technology Accessories Inc.
Income Statement
For the Year Ended December 31, 20Y3
Sales		$
Cost of Goods Sold
Gross Profit		$
Selling Expenses:
Salespersons Commissions
Advertising Design
Advertising Expenses
Total Selling Expenses

What’s the procedure to find the finished good and work in process??????

Finished Goods	$
Work in Process	$

Answer 1

Req.1

Technology Accessories Inc.
Income Statement
For the Year Ended December 31, 20Y3
Sales ( 460,000 *$40)		$18,400,000
Cost of Goods Sold( 460,000 *$25.9)		$11,914,000
Gross Profit		$6,486,000
Selling Expenses:
Salespersons Commissions(sales*20%)	$3,680,000
Advertising Design	750,000
Advertising Expenses	1,400,000
Total Selling Expenses		($5,830,000)
Operating Income		$656,000

  Cost of Good Sold:

Direct. Material	$ 15.40
Direct Labor	0.50
Manufac OH applied ( $1250/125)	$10
Total Cost per unit	$25.9

Req.2

Finished Goods	$ 1,036,000
Work in Process	$558,800

Explanation:

1) Finished Goods:

Number of Units Produced	500,000
Less : Units Sold	(460,000)
Ending finished goods	40,000
Multiply By: Cost of good sold	×$ 25.9
Ending Inventory	$ 1,036,000

2) Work In Process:

Additional Units	22,000
( DM + OH) ( 15.40 +10 = $ 25.4)	× 25.4
WIP	558,800