Question

Problem 1-20A (Algo) Product versus selling, general, and administrative (SG&A) costs LO 1-2, 1-3 Finch Manufacturing Company was started on January 1, year 1, when it acquired $79,000 cash by issuing common stock. Finch immediately purchased office furniture and manufacturing equipment costing $8,400 and $27,200, respectively. The office furniture had an eight-year useful life and a zero salvage value. The manufacturing equipment had a $3,200 salvage value and an expected useful life of three years. The company paid $11,700 for salaries of administrative personnel and $15,700 for wages to production personnel. Finally, the company paid $11,400 for raw materials that were used to make inventory. All inventory was started and completed during the year. Finch completed production on 4,500 units of product and sold 3,550 units at a price of $15 each in year 1. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.) Required Determine the total product cost and the average cost per unit of the inventory produced in year 1. (Round "Average cost per unit" to 2 decimal places.)

Determine the amount of cost of goods sold that would appear on the year 1 income statement. (Do not round intermediate calculations.)

Determine the amount of the ending inventory balance that would appear on the December 31, year 1, balance sheet. (Do not round intermediate calculations.)

Determine the amount of net income that would appear on the year 1 income statement. (Round your final answer value to the nearest whole dollar.)

Determine the amount of retained earnings that would appear on the December 31, year 1, balance sheet. (Round your final answer value to the nearest whole dollar.)

Determine the amount of total assets that would appear on the December 31, year 1, balance sheet. (Round your final answer value to the nearest whole dollar.)

Answer 1

Solution:

1. A.

Answer: Total product cost is $35,100

Raw materials used = 11,400

Depreciation of Mfg. Equipment (27,200 - 3,200) / 3 = 8,000

Wages to production personnel = 15,700

Total product cost = 11,400 + 8,000 + 15,700

= 35,100

1. B.

Answer: Average cost per unit is $7.80 per unit

Total product cost / Units produced

= 35,100 / 4,500

= 7.80

2. Cost of goods sold

Answer is : $27,690

= Units sold × Average cost per unit

= 3,550 × 7.80

= $ 27,690

3. Amount of ending inventory

Answer is : $7,410

= (4,500 units - 3,550 units) × 7.80 per unit

= $7,410

4. Net income

Answer is : $12,810

Sales (3,550 × 15) : 53,250

Less: cost of goods sold : 27,690

Gross margin (53,250 - 27,690) : 25,560

Less: Operating expenses (1,050 + 11,700) : 12,750

Depreciation office furniture (8,400/8) : 1,050

Salaries to administration personnel : 11,700

Net income (25,560 - 12,750) : 12,810

5. Retained Earnings:

Answer is : $12,810

6. Total Asset:

Answer is : $91,810

Cash : 57,850 (see working note below)

Ending inventory: 7,410

Office furniture (8,400 - 1,050) : 7,350

Manufacturing Equipment (27,200 - 8,000) : 19,200

Total Assets (57850+7410+7350+19200) = 91,810

Working Note of Cash:

Cash sales (3,550 × 15) : 53,250

Add: cash received from issue of common stock : 79,000

Total amount (53,250+79,000) : 132,250

Less: Cash Expenses : 74,400

= Cash in hand = $57,850

Cash expenses:

I. Office Furniture : 8,400

2. Mfg. Equipment : 27,200

3. Salary to Admin personnel : 11,700

4. Wage to production personnel: 15,700

5. Raw materials purchased: 11,400