Question

Orman Company produces neon-colored covers for tablets (e.g., iPads). For last year, Orman reported the following: Work-in-process inventory, January 1 $ 13,250 Work-in-process inventory, December 31 28,250 Finished goods inventory, January 1 113,000 Finished goods inventory, December 31 85,000 Direct materials inventory, January 1 3,450 Direct materials inventory, December 31 2,700 Direct materials purchased 183,750 Direct labor 138,000 Plant depreciation 19,500 Salary, production supervisor 47,000 Indirect labor 68,300 Utilities, factory 15,700 Sales commissions 42,000 Salary, sales supervisor 75,000 Depreciation, factory equipment 32,000 Administrative expenses 168,000 Supplies (40% used in the factory, 60% used in the sales office) 18,000 Advertising expense 43,600 Last year, Orman produced 89,000 units and sold 90,500 units at $10.50 per unit. Required: 1. Prepare a statement of cost of goods manufactured. Orman Company Statement of Cost of Goods Manufactured For Last Year Direct materials: $ Direct materials used in production $ Manufacturing overhead: $ Total manufacturing costs added $ Cost of goods manufactured $ 2. Prepare an absorption-costing income statement. Orman Company Income Statement: Absorption Costing For Last Year $ Cost of goods sold: $ $ $ Less operating expenses: $ $

Answer 1

STATEMENT OF COST OF GOODS MANUFACTURED
Direct Materials:
Beginning inventory	3450
Add: Purchases	183750
Total material available for use	187200
Less: Ending inventory	2700
Direct materials used in production		184500
Direct labor		138000
Manufacturing overhead:
Plant depreciation	19500
Salary, production supervisor	47000
Indirect labor	68300
Utilities, factory	15700
Depreciation-Factory equipment	32000
Supplies expense (18000*40%)	7200	189700
Total manufacturing costs added		512200
Add: Beginning WIP inventory		13250
Total manufacturing costs		525450
Less: Ending WIP inventory		28250
Cost of goods manufactured		497200
INCOME STATEMENT - ABSORPTION COSTING
Sales (90500*10.50)		950250
Cost of goods sold:
Beginning inventory of finished goods	113000
Add: Cost of goods manufactured	497200
Total finished goods available for sale	610200
Less: Ending inventory of finished goods	85000
Cost of goods sold		610200
Gross profit		340050
Operating expenses:
Sales commissions	42000
Salaries, sales supervisor	75000
Administrative expenses	168000
Supplies expense (18000*60%)	10800
Advertising expense	43600
Total operating expenses		339400
Operating income		650