Orman Company produces neon-colored covers for tablets (e.g., iPads). For last year, Ormanreported the following: Work-in-process inventory, January 1 $ 13,250Work-in-process inventory, December 31 28,250Finished goods inventory, January 1 113,000Finished goods inventory, December 31 85,000Direct materials inventory, January 1 3,450Direct materials inventory, December 31 2,700Direct materials purchased 183,750Direct labor 138,000Plant depreciation 19,500Salary, production supervisor 47,000Indirect labor 68,300Utilities, factory 15,700Sales commissions 42,000Salary, sales supervisor 75,000Depreciation, factory equipment 32,000Administrative expenses 168,000Supplies (40% used in the factory, 60% used in thesales office) 18,000Advertising expense 43,600Last year, Orman produced 89,000 units and sold 90,500 units at $10.50 per unit.Required:1. Prepare a statement of cost of goods manufactured.2. Prepare an absorption-costing income statement.
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.
Orman Company produces neon-colored covers for tablets (e.g., iPads). For last year, Orman
reported the following:
Work-in-process inventory, January 1 $ 13,250
Work-in-process inventory, December 31 28,250
Finished goods inventory, January 1 113,000
Finished goods inventory, December 31 85,000
Direct materials inventory, January 1 3,450
Direct materials inventory, December 31 2,700
Direct materials purchased 183,750
Direct labor 138,000
Plant
Salary, production supervisor 47,000
Indirect labor 68,300
Utilities, factory 15,700
Sales commissions 42,000
Salary, sales supervisor 75,000
Depreciation, factory equipment 32,000
Administrative expenses 168,000
Supplies (40% used in the factory, 60% used in the
sales office) 18,000
Advertising expense 43,600
Last year, Orman produced 89,000 units and sold 90,500 units at $10.50 per unit.
Required:
1. Prepare a statement of cost of goods manufactured.
2. Prepare an absorption-costing income statement.
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