Assignment 1 ACCT 5204-27

Student Name : Saurabh Sharma Student ID : 0260042
Student email id : [email protected]
Assignment 1 ACCT 5204 - 27
Question 1
Classic Sound is a start-up company that produces vinyl records for numerous record labels
worldwide. The company has two full-time employees working in the production department while
the CEO splits her time 80/20% between developing new business and overseeing the production
process. Information taken from the accounting records for the first three months of operations is
shown below.
Beginning raw materials inventory $ 0
Purchases of raw materials 56,500
Ending raw materials inventory 28,250
Direct labour 45,850
Manufacturing overhead 34,550
Beginning work in process inventory 0
Ending work in process inventory 6,300
Purchase of production equipment 165,000
Rent for production facility 10,950
1. Prepare a schedule of cost of goods manufactured for the company for the month. (45 marks)
Answer.
Schedule of cost of goods manufactured for the company for the month.
Classic Sound
Schedule of cost of goods manufactured
Raw materials consumed
Beginning raw materials inventory $0
Add Purchases of raw materials $56,500
Raw materials available $56,500
Less Ending raw materials inventory $28,250
Raw materials consumed $28,250
Direct labour $45,850
Manufacturing overhead $34,550
Rent for production facility $10,950
Manufacturing cost $119,600
Add Beginning work in process inventory $0
Less Ending work in process inventory $6,300
Cost of goods manufactured $113,300
Explanation:
Purchase of production equipment is a capital nature transaction needs to be added to fixed
assets. It has no place in the schedule of cost of goods manufactured.
Question 2
Winter Leisure is a retailer of snowboards. The information below is for the quarter ended
December 31:
Total sales revenue $ 1,156,000
Selling price per snowboard $ 340
Variable selling expense per snowboard $ 50
Variable administrative expense per snowboard $ 20
Total fixed selling expense $ 290,000
Total fixed administrative expense $ 260,000
Merchandise inventory, beginning balance $ 95,000
Merchandise inventory, ending balance $ 115,000
Merchandise purchases $ 356,000
Required:
a. Prepare a traditional income statement for the quarter ended December 31. (15 marks)
b. Prepare a contribution format income statement for the quarter ended December 31. (25 marks)
c. What was the contribution toward fixed expenses and profits for each snowboard sold during the
quarter? (5 marks)
d. What would operating income be if only 3,000 snowboards were sold in a quarter? You can
assume no change to fixed expenses will occur if sales decline to 3,000 snowboards. (10 marks)
Answer
a) Traditional Income Statement for the quarter ended December 31
Cost of goods sold =
Beginning merchandise inventory + Merchandise purchases – Ending merchandise inventory
$94,000+$356,000-$115,000 = $ 335,000
Number of units sold= Sales / Selling price
$1,156,000/$340 =3,400
Variable selling expense=Number of units ∗ Variable selling expense per unit

3,400×$50=$170,000
Total selling expense= Variable selling expense + Fixed selling expense
$170,000+$290,000 = $460,000
Variable administrative expense=Number of units ∗ Variable administrative expense per unit

=3,400×$20=$68,000.
Total Administrative Expenses = Variable Administrative Expenses + Fixed Administrative Expenses

$68,000 +$ 260,000 = $328,000
Winter Leisure
Traditional income Statement
Quarter ended December 31
Total Sales Revenue $1,156,000
Cost of goods sold $335,000
Gross margin $821,000
Selling and administrative
expenses
Selling expenses $460,000
Administrative expenses $328,000 $788,000
Operating income $33,000
b) & c) Contribution Format Income Statement:
Total Sales Revenue: $1,156,000

Variable Expenses:
Variable Selling Expenses: $170,000
Variable Administrative Expenses: $68,000
Total Variable Expenses: Variable Selling Expenses + Variable Administrative
Expenses=
=$170,000+$68,000 = $ 238,000
Contribution Margin: Sales Revenue - Total Variable Expenses
$1,156,000 - $ 238,000 = $918,000
Fixed Expenses:
Fixed Selling Expenses: $290,000
Fixed Administrative Expenses: $260,000
Operating Income: Contribution Margin - Fixed Expenses
$918,000 = $550,000 = 368,000

d) In case of 3000 snowboards operating income = $360,000 Variable administrative
expenses = $60,000
Contribution Margin :
$1,156,000 – $230,000 = $910,000
Operating Income = $910,000 - $550,000 = $360,000

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Student Name : Saurabh Sharma Student ID : 0260042

Student email id : [email protected]

Assignment 1 ACCT 5204 - 27

Schedule of cost of goods manufactured

Raw materials consumed

Beginning raw materials inventory $0

Add Purchases of raw materials $56,500

Raw materials available $56,500

Less Ending raw materials inventory $28,250

Raw materials consumed $28,250

Direct labour $45,850

Manufacturing overhead $34,550

Rent for production facility $10,950

Manufacturing cost $119,600

Add Beginning work in process inventory $0

Less Ending work in process inventory $6,300

Cost of goods manufactured $113,300

Total sales revenue $ 1,156,000

Selling price per snowboard $ 340

Variable selling expense per snowboard $ 50

Variable administrative expense per snowboard $ 20

Total fixed selling expense $ 290,000

Total fixed administrative expense $ 260,000

Merchandise inventory, beginning balance $ 95,000

Merchandise inventory, ending balance $ 115,000

Merchandise purchases $ 356,000

Variable selling expense=Number of units ∗ Variable selling expense per unit

Variable administrative expense=Number of units ∗ Variable administrative expense per unit

Total Administrative Expenses = Variable Administrative Expenses + Fixed Administrative Expenses

b) & c) Contribution Format Income Statement:

Total Sales Revenue: $1,156,000

$918,000 = $550,000 = 368,000

Operating Income = $910,000 - $550,000 = $360,000

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