Prime Cost Conversion Cost Preparation of Income Statement M

Prime Cost, Conversion Cost, Preparation of Income Statement: Manufacturing Firm Kildeer Company makes easels for artists. During the last calendar year, a total of 30,000 easels were made, and 31,000 were sold for $52 each. The actual unit cost is as follows: Direct materials Direct labor Variable overhead Fixed overhead Total unit cost $14.70 5.80 3.25 15.25 $39.00 The selling expenses consisted of a commission of $1.30 per unit sold and advertising co-payments totaling $95,000. Administrative expenses, all fixed, equaled $183,000. There were no beginning and ending work- in-process inventories. Beginning finished goods inventory was $132,600 for 3,400 easels. e here to search 1/20

Solution

Answer to 2:-

Cost of goods manufactured (30,000*39). = $1,170,000

Add: Beginning inventory cost (given). = $132,600

Cost of goods available for sale. = $1,302,600

Less: closing inventory cost (as calculated in 1.) = $93,600

Cost of goods sold. = $1,209,000

Question 3.

Since we have already adjusted opening and closing inventories in calculating the cost of goods sold, we will not adjust them again to calculate the operating income. The correct income statement will be as follows:

Sales (31,000*52). $1,612,000. 100.00%

Cost of goods sold. $1,209,000. 75.00%

Commission cost (31,000*1.30). $40,300. 2.50%

Advertisement costs. $95,000. 5.89%

Administrative expenses. $183,000. 11.35%

Net operating income. $84,700. 5.25%