Question

Fultz Company has accumulated the following budget data for the year 2020.

1. Sales: 31,480 units, unit selling price $89.
2. Cost of one unit of finished goods: direct materials 1 pound at $5 per pound, direct labor 3 hours at $12 per hour, and manufacturing overhead $6 per direct labor hour.
3. Inventories (raw materials only): beginning, 10,270 pounds; ending, 15,380 pounds.
4. Selling and administrative expenses: $170,000; interest expense: $30,000.
5. Income taxes: 30% of income before income taxes.

Required:
a. Prepare a schedule showing the computation of cost of goods sold for 2020.
b. Prepare a budgeted multiple-step income statement for 2020.

Answer 1

Part a

Fultz Company

Schedule of cost of goods sold for 2020.

Direct Materials (5,110 x $5) $25,550

Direct Labor (3 x $12 x 5,110) $229,950

Manufacturing overheads (3 x $6 x 5,110) $91,980

Total Cost $347,480

Part b

Fultz Company

Budgeted multiple-step income statement for 2020.

Sales (31,480 x $89) $2,801,720

Less Cost of Sales ($347,480)

Gross Profit $2,454,240

Less Expenses :

Operating Expenses

Selling and administrative expenses ($170,000)

Operating Profit $2,284,240

Less Non-Operating Expenses

Interest expenses ($30,000)

Net Income before Income taxes $2,254,240

Income tax expense ($676,272)

Net Income after Interest and tax $1,577,968

Step-by-step explanation:

For a manufacturing firm, the cost of goods manufactured automatically becomes the cost of goods sold.

The first step is to calculate units of Raw Materials used. The difference in raw material inventories provides this amount as :

Units of Raw Materials used = 15,380 pounds - 10,270 pounds = 5,110 pounds

Remember a Multi-step Income Statement separates Profit generated from Primary Activities (Operating Profit) of the firm and those from Secondary Activities Activities (Net Income) as shown above.