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    Chapter 2-16 & 2-24

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    Angelgraceregalado

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    © All Rights Reserved
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    Chapter 2-16 & 2-24

    Uploaded by

    Angelgraceregalado
    13 views12 pages

    Original Title

    CHAPTER 2-16 & 2-24

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    13 views12 pages

    Chapter 2-16 & 2-24

    Uploaded by

    Angelgraceregalado

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 12

    PROBLEMS 2-16 & 2-24

    Presented by: Group 1


    Amas, Mayette
    Montaño, Rogen Kirt
    Pablito, Laiza Grace
    Tinaco, Hannah
    Regalado, Angel
    Problem 2-16 Schedule of Cost of Goods Manufactured; Income
    Statement
    Swift Company was organized on March 1 of the current year. After five months
    of start-up losses, management had expected to earn a profit during August.
    Management was disappointed, however, when the income statement for
    August also showed loss. August’s income statement follows:

    Swift Company
    Income Statement
    For the Month Ended August 31

    Sales $450,000
    Less: Operating Expenses
    Direct Labor Cost 70,000
    Raw Materials Purchased 165,000
    Manufacturing Overhead 85,000
    Selling and administrative expenses 142,000 462,000
    Net operating loss $(12,000)
    After seeing the 12,000 loss for August, Swift’s president stated, “I was sure we’d be profitable
    within six months, but our sixth months are up and this loss for August is even worse than July.

    1. I think it’s time to start looking for someone to buy out the company’s assets - if we don’t, within
    a few months there won't be any assets to sell. By the way, I don’t see any reason to look for a
    new controller. We’ll just jump along with Sam for the time being.

    The company’s controller resigned a month ago. Sam, a new assistant in the controller’s office,
    prepared the income statement above. Sam has had little experience in manufacturing
    operations.
    Inventory balances at the beginning and end of August were:

    August 1 August 31
    Raw Materials $8,000 $13,000
    Work in Process $16,000 $21,000
    Finished Goods $40,000 $60,000
    The president has asked you to check over 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 a recommendation to the president,
    prepare a schedule of cost of goods manufactured for August.
    Required:
    2. As a step, prepare a new income statement for August.
    Required:
    3. Based on your statements prepared in (1) and (2) above, would you
    recommend that the company look for a buyer?

    We recommend the company not to pursue the sale of its assets based on our review of
    the data that has been supplied. This recommendation is based on the discrepancies
    that were found between Sam's income statement and the one that was previously
    drafted. The differences prove that the president's prediction that the business will turn a
    profit by August is accurate. The net operating income shown in the updated and
    accurate income statement supports this claim. The first mishandling of accounting
    concepts during the manufacturing entity's income statement preparation almost led to
    a poor choice. This scenario highlights how crucial it is to have a solid understanding of
    the accounting procedures that are unique to various business types in order to prepare
    financial statements. This particular type of knowledge is essential since mistakes in
    financial reporting have the potential to mislead management, which could result in
    poor decisions and affect the company's finances.
    Problem 2-24 Income Statement; Schedule of Cost of Goods Manufactured

    Visic Corporation, a manufacturing company, produces a single product. The


    following information has been taken from the company’s production, sales,
    and cost records for the just completed year.

    Production in units 29,000


    Sales in units ?
    Ending finished goods inventory in units ?
    Sales in dollars $1,300,000
    Costs:
    Direct labor $90,000
    Raw materials purchased $480,000
    Manufacturing overhead $300,000
    Selling and administrative expenses $380,000
    Beginning of the Year End of the Year

    Inventories:

    Raw Materials $20,000 $30,000

    Work in Process $50,000 $40,000

    Finished Goods $0 ?

    The finished goods inventory is being carried at the average unit production
    cost for the year. The selling price of the product is $50 per unit.
    Required:
    1. Prepare a schedule of cost of goods manufactured for the
    year.
    2. Compute the following:
    a. The number of units in the finished goods inventory at
    the end of the year.
    b. The cost of the units in the finished goods inventory at
    the end of the year.
    3. Prepare an income statement for the year.
    Solutions:
    Visic Corporation
    Schedule of Cost of Goods Manufactured

    Direct Materials:
    Raw materials inventory, beginning $20,000
    Add: Purchases of raw materials 480,000
    Raw materials available for use 500,000
    Less: Raw materials inventory, ending (30,000)
    Raw materials used in production $470,000

    Direct labor 90,000


    Manufacturing overhead 300,000
    860,000
    Total Manufacturing cost
    50,000
    Add: Work in process inventory, beginning 910,000
    Less: Work in process inventory, ending (40,000)
    Cost of goods manufactured $870,000
    2.a) Solution:

    Sales in dollars / Selling Price per unit = Sales in Unit $1,300,000 /


    $50 = 26,000 Finished Goods, beginning + Production in units-
    Sales in Unit = Ending finished goods inventory in units 0+ 29,000-
    26,000 = 3,000 units

    2.b) Solution:

    Cost of Goods Manufactured / Production in Units = Unit Cost


    $870,000/ 29,000 = $30 per Unit Finished Goods Inventory, end x
    Unit Cost = Cost of Finished Goods Inventory 3,000 units x $30
    = $90,000
    Visic Corporation
    Income Statement
    Sales $1,300,000
    Finished goods inventory, beginning $0
    Add: Cost of goods manufactured 870,000
    Goods Available for sale 870,000
    Less: Finished good inventory, ending (90,000)
    Cost of Good Sold (780,000)
    Gross Margin 520,000
    Less: Selling and Administrative Expenses (380,000)
    Net operating Income $140,000

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