Question

Pharoah Company has accumulated the following budget data for the year 2020. 1. Sales: 31,410 units, unit selling price $89. 2. Cost of one unit of finished goods: direct materials 1 pound at $5 per pound, direct labor 3 hours at $12 per hour, and manufacturing overhead $8 per direct labor hour. 3. Inventories (raw materials only): beginning, 10,240 pounds; ending, 15,220 pounds. 4. Selling and administrative expenses: $170,000; interest expense: $30,000. 5. Income taxes: 30% of income before income taxes. Prepare a schedule showing the computation of cost of goods sold for 2020. PHAROAH COMPANY Computation of Cost of Goods Sold Cost of one unit of finished goods: Direct materials $ Direct labor Manufacturing overhead Total $ Cost of Goods Sold $ Prepare a budgeted multiple-step income statement for 2020. PHAROAH COMPANY Budgeted Income Statement $ $

Answer 1

Answer:

Computation of cost of goods sold for 2020

Direct materials(1 pound× $5 )                                  $5

Direct labor(3 hours × $12)                                      $36

manufacturing overhead ($8 × 3 hours)                $24

Total unit cost                                                          $65

Budgeted multiple-step income statement for 2020

Sales ( 31,410 units × $89)                            2,795,490

Less Cost of Sales (31,410 units × $65)      (2,041,650)

Gross Profit                                                      753,840

Less Operating Expenses :

Selling and administrative expenses:           (170,000)

Operating Income                                           583,840

Less Non - Operating Expenses

Interest expense                                             (30,000)

Income before income taxes                         553,840

Income tax (553,840×30%)                            (166,152)

Income After income taxes                            387,688

Explanation:

Cost of Sales = all manufacturing costs

Multi step - Income Statement separates income generated from Primary Activities of the Company (Operating Income) with Income generated from Secondary Activities of the Company (Non-Operating Income)