Question

Trendwell Company produced 190,000 cases of aerated drinks during the past calendar year. Each case of 800-ml drinks sells for $42. Trendwell had 2,800 cases of aerated drinks in finished goods inventory at the beginning of the year. At the end of the year, there were 12,600 cases of aerated drinks in finished goods inventory. Trendwell’s accounting records provide the following information: Purchases of direct materials $ 2,740,000 Direct materials inventory, January 1 $ 320,000 Direct materials inventory, December 31 $ 122,000 Direct labour $ 1,430,000 Indirect labour $ 254,000 Depreciation, factory building $ 532,000 Depreciation, factory equipment $ 387,000 Property taxes on factory $ 72,000 Utilities, factory $ 134,000 Insurance on factory $ 196,000 Salary, sales supervisor $ 92,000 Commissions, salespersons $ 198,000 Advertising $ 356,000 General administration $ 413,000 Work in process inventory, January 1 $ 385,000 Work in process inventory, December 31 $ 648,000 Finished goods inventory, January 1 $ 209,600 Finished goods inventory, December 31 $ 419,000 Required: Prepare a schedule of cost of goods manufactured. Compute the cost of producing one case of aerated drinks last year (round your answer to the nearest cent). Prepare an income statement on an absorption costing basis.

Answer 1

To calculate the cost of goods manufactured for Trendwell Company, we account for direct materials, labor, and manufacturing overhead, arriving at a total cost of goods manufactured of $5,470,600. The cost per case of aerated drinks is approximately $28.79. The income statement reveals a net income of $1,450,400 after accounting for all production costs and selling and administrative expenses.

Step-by-step explanation:

The student's question involves calculating the schedule of cost of goods manufactured, the cost of producing one case of aerated drinks, and preparing an income statement on an absorption costing basis for the Trendwell Company.

Cost of Goods Manufactured:

Direct Materials Used = Beginning Inventory + Purchases - Ending Inventory

Direct Materials Used = $320,000 + $2,740,000 - $122,000 = $2,938,000

Total Manufacturing Costs = Direct Materials Used + Direct Labour + Indirect Labour + Depreciation (building + equipment) + Property Taxes + Utilities + Insurance

Total Manufacturing Costs = $2,938,000 + $1,430,000 + $254,000 + $532,000 + $387,000 + $72,000 + $134,000 + $196,000 = $5,943,000

Total Work in Process = Beginning Work in Process + Total Manufacturing Costs - Ending Work in Process

Total Work in Process = $385,000 + $5,943,000 - $648,000 = $5,680,000

Cost of Goods Manufactured = Total Work in Process + Beginning Finished Goods Inventory - Ending Finished Goods Inventory

Cost of Goods Manufactured = $5,680,000 + $209,600 - $419,000 = $5,470,600

Cost Per Unit:

The cost of producing one case of aerated drinks can be calculated by dividing the total cost of goods manufactured by the number of units produced:

Cost Per Case = Cost of Goods Manufactured / Total Cases Produced

Cost Per Case = $5,470,600 / 190,000

Cost Per Case = $28.79 (rounded to the nearest cent)

Incoming Statement:

The income statement on an absorption costing basis would include the revenues and expenses related to the production and sale of aerated drinks, including general administration and sales costs.

Revenues: 190,000 cases * $42 = $7,980,000

Cost of Goods Sold: $5,470,600

Gross Profit = Revenues - Cost of Goods Sold

Gross Profit = $7,980,000 - $5,470,600 = $2,509,400

Selling and Administrative Expenses = Sales Supervisor Salary + Commissions + Advertising + General Administration

Selling and Administrative Expenses = $92,000 + $198,000 + $356,000 + $413,000 = $1,059,000

Net Income = Gross Profit - Selling and Administrative Expenses

Net Income = $2,509,400 - $1,059,000 = $1,450,400