Question

W. W. Phillips Company produced 4,000 leather recliners during the year. These recliners sell for $400 each. Phillips had 500 recliners in finished goods inventory at the beginning of the year. At the end of the year, there were 700 recliners in finished goods inventory. Phillips’ accounting records provide the following information:

Purchases of raw materials	$320,000
Beginning materials inventory	46,800
Ending materials inventory	66,800
Direct labor	200,000
Indirect labor	40,000
Rent, factory building	42,000
Depreciation, factory equipment	60,000
Utilities, factory	11,900
Salary, sales supervisor	90,000
Commissions, salespersons	180,000
General administration	300,000
Beginning work-in-process inventory	13,040
Ending work-in-process inventory	14,940
Beginning finished goods inventory	80,000
Ending finished goods inventory	114,100

	Required:
1.	Prepare a statement of cost of goods manufactured.
2.	Compute the average cost of producing one unit of product in the year.
3.	Prepare an income statement for external users.

Answer 1

W.W Philips Manufacturing Statement Year XXX Particulars Amount in $ Beigining Raw Material Inventory 46800 Purchase During the year 320000 Inventory avaliable for use 366800 Less : Raw material ending Inventory -66800 Raw Material used 300000 Direct labour 200000 Prime Cost 500000 Factory Overhead Indirect labour 40000 Rent Factory Building 42000 Depreciation on Factory equipment 60000 Utilles Factory 11900 Total Factory Overhead 153900 Total Manufacturing Costs 653900 Add :Beginning of Work in Progress Inventory 13040 Less :Ending Work in Progress Inventory -14940 Factory Cost 652000 Add :Office & Adminstative Expenses General Adminstation 300000 Salary, sales supervisor 90000 Cost of Production 1042000 Add :Beginning Finished goods Inventory 80000 Less :Ending Finished goods Inventory -114100 Cost of Goods manufactured 1007900 Add : Selling & Overhead Expenses 180000 Total Cost 1187900 (It is assumed that General & adminstrative expenses is directly attribute to the product cost. Otherwise, It could be part of Income statement) A. Cost of Goods manufactured 1007900 B. Compute the average cost of producing one unit of product in the year Total Cost of Product (in $) 1187900 Production units 4000 Average Cost Per unit (in $) 296.975 Total Sale units Particulars Beginning Inventory in units 500 Add :Production units 4000 Less: Ending inventory in units -700 3800 C. Income Statement W.W Philips Income Statement Year XXX Particulars Amount in $ Sales Revenue (3800*400) 1520000 Less : Cost of goods sold -1007900 Gross Profit (A) 512100 Operating Expenses Selling Expenses 180000 Operating Expenses (B) 180000 Operating Income (A-B) 332100