Question

Carrington, Inc. began business at the start of the current year and maintains its accounting records on an absorption-cost basis. The following selected information appeared on the company's income statement and end-of-year balance sheet: Income Statement data: Sales revenues (45,000 units × $19) $ 855,000 Gross margin 315,000 Total sales and administrative expenses 171,000 Balance sheet data: Ending finished goods inventory (20,000 units) 240,000 Carrington achieved its planned production level for the year. The company's fixed manufacturing overhead totaled $130,000, and the firm paid a 10% commission based on gross sales dollars to its sales force. Required: A. How many units did Carrington plan to produce during the year? B. How much fixed manufacturing overhead did the company apply to each unit produced? C. Compute Carrington’s cost of goods sold. D. How much variable cost did the company attach to each unit manufactured?

Answer 1

ANSWER:

A. Sales (45,000 units) + ending finished-goods inventory(20,000 units) = production (65,000 units).

Note: There is no beginning finished-goods inventory.

B. Because planned and actual production figures are the same, Carrington applied $3 to each unit ($ 141,000/65000 units)

C. Sales revenue $855,000 Gross margin   $315,000

Cost of goods sold    $540,000

D. Carrington attached $9 to each unit. this figure can be derived by analyzing cost of goods sold:

Cost of goods sold $540,000

Fixed cost in cost of goods sold (45,000 units * $ 3) $135,000

Variable cost of goods sold $405,000

$405,000/ 45,000 units = $9

The same $9 figure can be obtained by studing the ending finished-goods inventory :

Ending finished-goods inventory $240,000

Fixed cost (20,000*$3) $60,000

Variable cost $ 180,000

$180,000/20,000 units = $9

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