Question Completion:
Research and development expense………………….…….. 4,750
Prepaid advertising …….…………………………………. 3,000
Indirect manufacturing labor cost..………………………… 16,200
Utilities expense..…. .....................………………………… 10,200
Direct manufacturing labor cost. ………………………..… 41,000
Factory equipment………………………………………….. 40,000
Insurance expense…………………….………………. …… 3,500
Restructuring costs………………………………………….. 4,000
Direct materials purchased………………………………..... 93,000
Interest expense……………………………………………. 1,750
Rent expense…..…………….………………. …………….. 18,000
Other factory indirect costs…………………………………. 3,000
Dividend paid………………………………………………. 1,500
Administrative expenses………………….…………………. 40,400
Short-term investment……………………………………… . 19,000
Total operating expenses …………………………………….. 331,550
Net operating loss …………………………………………….. ($10,800)
a. Seventy percent (70%) of utilities expense and 80% of insurance expense are for factory operations. Apply the remaining utilities and insurance expenses equally to selling expense and administrative expenses.
b. Sixty percent (60%) of the rent expense is associated with factory operations. Allocate the remaining rent equally to selling expense and administrative expenses.
c. Factory equipment was purchased January 1, 2017. It was estimated that the useful life of the equipment is 10 years and the residual value, $4,000. The $10,000 accumulated depreciation above is for 2017. No depreciation was charged for 2018. The company uses the double-declining balance method of depreciation.
d. Inventory balances are: January 1, 2018 December 31, 2018
Direct materials……………… $5,000 $6,600
Work-in-process ……………..$8,000 $10,000
Finished goods ……………$25,000 $28,000
e. The company’s tax rate is 21%. The president is disappointed with the results of operations and has asked you to review the income statement and make a recommendation as to whether the company should look for a buyer for its assets. Required:
1. As one step in gathering data for the president, prepare a corrected schedule of cost of goods manufactured for the year ended December 31, 2018.
2. As a second step, prepare a new multiple-step income statement for the year ended December 31, 2018.
3. Calculate the cost of producing one unit if the company produced 120,000 units in 2018 (round your answer to two decimal points).
Answer:
Salem Company
Income Statement
For the year ended December 31, 2019
Description Reference Amount ($) Amount ($)
Sales Revenue A 298,000.00
Cost of goods Sold:
Purchases - Change in Inventory 6,600.00
Direct Materials purchased 93,000.00
Direct Manufacturing labor cost 41,000.00
Manufacturing Costs:
Utilities Exp (70%) 7,140.00
Insurance Exp (80%) 2,800.00
Rent Exp (60%) 10,800.00 20,740.00
Total Cost of Goods Sold 161,340.00
Gross Profit $136,660.00
Operating Expenses:
Indirect Manufacturing labor cost 16,200.00
Other factory indirect cost 3,000.00
Selling Expenses 32,250.00
Utilities Exp (15%) 1,530.00
Insurance Exp (10%) 350.00
Rent Exp (20%) 3,600.00
Administrative Exp 40,400.00
R&D Expenses 4,750.00
Restructuring cost 4,000.00
Depreciation 7,200.00
Total Operating Expense 118,760.00
Operating Income $17,900.00
Non - Operating Expenses:
Interest Exp 1,750.00
Dividend Paid 1,500.00
Total Non- Operating Expense (3,250.00 )
Non-operating / Other Income
Gain on sale of investment 5,250.00
Total Non- Operating Income
Net Income before tax 19,900.00
Tax at 21% 4,179.00
Net Income after taxes $15,721.00
3. Assume company produced 120,000 units for year 2018, then cost per unit would be
Total cost of goods sold = $ 161,340 divided by 120,000 units
= $ 1.34 per unit
Explanation:
a) Data and Calculations:
Salem Company
Income Statement
As of December 31, 2019
Revenues:
Sales revenue ……………..…………………………………… $298,000
Wages payable…………..……………………………………….. 4,000
Gain on sale of investment…………………………………….. 5,250
Deferred revenue………………………………………………. 2,500
Interest payable………………………………………………… 1,000
Accumulated depreciation……………………………………… 8,000
Total revenues ………………………………………………….. $318,750
Less operating expenses:
Selling expenses….……………………… …………………. $32,250
Research and development expense………………….…….. 4,750
Depreciation= (40000-4000)*(100%/10yrs*2) = $7,200.00