Question

Vivus is a specialty pharmaceutical company incorporated in California in 1991 and reincorporated in Delaware in 1996. In April 2018, the company hired John Amos as its new Chief Executive Officer. Under Amos’ leadership, the company ventured into manufacturing many new product lines, including Pancrease, a prescription medicine used to treat people who cannot digest food normally because their pancreas does not make enough enzymes due to cystic fibrosis or other conditions. At the end of December 2019, the accounting records relating to the Pancrease product line showed the following:

Work in process inventory, December 31, 2019 $ 9,720

Finished goods inventory, December 31, 2018 $ 0

Finished goods inventory, December 31, 2019 $ 7,300

Sales revenue $ 251,000

Customer service toll-free line expense $ 3,900

Factory utilities $ 12,400

Delivery expense $ 6,500

Sales salaries expense $ 10,300

Factory maintenance services $ 2,900

Direct Labour $ 46,600

Direct material purchases $ 96,000

Rent on factory $ 24,500

Raw materials inventory, December 31, 2018 $ 29,500

Raw materials inventory, December 31, 2019 $ 19,800

Work in process inventory, December 31, 2018 $ 0

Required: 1. Prepare a schedule of cost of goods manufactured for Vivus’ Pancrease product line for the year ended December 31, 2019. 10 marks

2. Prepare an income statement for Vivus’ Pancrease product line for the year ended December 31, 2019. 10 marks

Answer 1

Requirement 1:

Vivu's Pancrease Product line
Cost of goods Manufactured Schedule
For the Year Ending December 31, 2019
Work in Process inventory, Beginning			$ 0
Direct Materials:
Raw Materials Inventory, Beginning	$ 29,500
Raw Materials Purchases	$ 96,000
Raw materials available	$ 125,500
Raw Materials Inventory, Ending	($ 19,800)
Direct Materials Used		$ 105,700
Direct Labor		$ 46,600
Manufacturing Overhead:
Factory Utilities	$ 12,400
Factory maintenance services	$ 2,900
Rent on factory	$ 24,500
Total Manufacturing Overheads		$ 39,800
Total Manufacturing Costs			$ 192,100
Total Cost of Work in Process			$ 192,100
Less: Work in process inventory, Ending			($ 9,720)
Cost of goods Manufactured			$ 182,380

Requirement 2:

Vivu's Pancrease Product line
Income statement
For the Year Ending December 31, 2019
Sales		$ 251,000
Cost of goods sold:
Finished goods inventory, Beginning	$ 0
Cost of goods manufactured	$ 182,380
Cost of goods available for sale	$ 182,380
Less: Finished goods inventory, Ending	($ 7,300)
Cost of goods sold		$ 175,080
Operating expenses:
Delivery expense	$ 6,500
Sales salaries expense	$ 10,300
Customer service toll-free line expense	$ 3,900
Total operating expenses		$ 20,700
Net income		$ 55,220