1) Prepare San Fernando Fashions' schedule of cost of goods manufactured for the year. 2) Prepare San Fernando Fashions' schedule of cost of goods sold for the year. 3) Prepare San Fernando Fashions' income statement for the year.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
The following data refer to San Fernando Fashions Company for the year 20x2:
| Description |
Cost |
|
Sales revenue |
$950,000 |
| Work-in-process inventory, December 31 | $30,000 |
| Work-in-process inventory, January 1 | $40,000 |
| Selling and administrative expense | $150,000 |
| Income Tax expense | $90,000 |
| Purchases of raw material | $180,000 |
| Raw material inventory, December 31 | $25,000 |
| Raw material inventory, January 1 |
$40,000 |
| Direct labor | $200,000 |
| Utilities: plant | $40,000 |
| $60,000 | |
| Finished-goods inventory, December 31 | $50,000 |
| Finished-goods inventory, January 1 | $20,000 |
| Indirect material | $10,000 |
| Indirect labor | $15,000 |
| Other manufacturing |
$80,000 |
1) Prepare San Fernando Fashions' schedule of cost of goods manufactured for the year.
2) Prepare San Fernando Fashions' schedule of cost of goods sold for the year.
3) Prepare San Fernando Fashions' income statement for the year.
4) Construct an Excel spreadsheet to solve all of the preceding requirements. Show how both cost schedules and the income statement will change if raw material purchases amounted to $190,000 and indirect labor was $20,000.
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