Question

Consider the following information for Fair Wind Yachts Inc., a manufacturer of sailboat rigging, blocks, and cordage.

Answer 1

Answer:

Cost of good manufactured= 1865176

Net Income= 526272

Explanation:

A) To calculate the cost of manufactured goods we need to use the following formula:

Cost of good manufactured= Beginning work in progress+ direct materials of the period + direct labor + manufactured overhead - ending work in progress

Beginning work in progress= $32,500

Direct materials = beginning inventory + purchase - ending inventory= 19,888+ 425,808- 22,500= $423196

Direct labor= $524,800

Manufactured overhead=(Depreciation expense-plant and equipment) + Indirect labor + Insurance on plant + Heat and light for plant + (Supervison's salary-plant) + (Supplies-plant) + Repairs on plant building

= 323,000+275,880+33,800+23,200+98,900+132,680+37,500=$924960

Ending work in progress= 40,280

Cost of good manufactured=32500+423196+524800+924960-40280= $1865176

Expenses that are outside of the manufacturing facilities, such as selling, general and administrative expenses, are not product costs. They are reported as expenses on the income statement in the accounting period in which they occur.

2)

The general structure of an income statement proceeds as follow:

Revenue/Sales (+)

Cost of Goods Sold (COGS) (-)

=Gross Profit

Marketing, Advertising, and Promotion Expenses (-)

General and Administrative (G&A) Expenses (-)

=EBITDA

Depreciation & Amortization Expense (-)

=Operating Income or EBIT

Interest (-)

Other Expenses (-)

=EBT (Pre-Tax Income)

Income Taxes (-)

=Net Income

First, we need to calculate the cost of goods sold

COGS=Beginning Inventory+Production during period−Ending Inventory=55680+1865176-44288= $1876568

Income Statement:

Revenue=2947000

COGS=1876568  (-)

Gross profit= 1070432

Marketing, Advertising, and Promotion Expenses= 15380 (-)

Administrative (G&A) Expenses= 78900+326500= 405400 (-)

EBITDA= 649652

Depreciation= 76280+47100=  123380  (-)

Net income= $526272