Question

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 52,900 units will be produced, with the following total costs:

Direct materials	?
Direct labor	54,000
Variable overhead	20,000
Fixed overhead	245,000

Next year, Pietro expects to purchase $121,000 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:

	Direct materials Inventory	Work-in-Process Inventory
Beginning	$7,000	$12,900
Ending	$6,900	$14,900

Next year, Pietro expects to produce 52,900 units and sell 52,200 units at a price of $15.00 each. Beginning inventory of finished goods is $41,500, and ending inventory of finished goods is expected to be $33,000. Total selling expense is projected at $28,500, and total administrative expense is projected at $116,000.

Required:

1. Prepare an income statement in good form. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35.

Pietro Frozen Foods, Inc.
Income Statement
For the Coming Year
			Percent
		$	%
			%
		$	%
Less operating expenses:
	$
			%
		$	%

2. What if the cost of goods sold percentage for the past few years was 52.04 percent? Management's reaction might be:

Answer 1

1)
SCHEDULE OF COST OF GOODS MANUFACTURED
Beginning WIP		12900
Direct materials cost:
Beginning direct materials inventory	7000
Purchases of direct materials	121000
Total direct materials available	128000
Ending direct materials inventory	6900
Direct materials cost		121100
Direct labor cost		54000
Variable overhead		20000
Fixed overheads		245000
Total manufacturing cost		453000
Ending WIP inventory		14900
Cost of goods manufactured		438100
SCHEDULE OF COST OF GOODS SOLD
Beginning inventory of finished goods		41500
Cost of goods manufactured		438100
Total goods available for sale		479600
Ending inventory of finished goods		33000
Cost of goods sold		446600
INCOME STATEMENT
Sales revenue (52200 units at $15.00)		783000	100.00%
Cost of goods sold		446600	57.04%
Gross profit		336400	42.96%
Less: Operating expenses:
Selling expenses	28500
Administrative expenses	116000	144500	18.45%
Net operating income		191900	24.51%
2) Investigate production cost management.
The reasons for increase in cost during the year is to be investigated.