Costs Incurred: Direct Labor $70,000 Purchases of raw materials $118,000 Indirect labor for factory $30,000 Maintenance, factory equipment $6,000 Advertising expense $90,000 Insurance, factory equipment $800 Sales Department salaries $50,000 Rent for factory facilities $20,000 Misc. manufacturing supplies $4,200 Depreciation, administrative office equipment $3,000 Depreciation, factory equipment $19,000 Income Taxes $40,000 Sales $500,000 Beginning End of Inventories: of Year Year Raw Materials $7,000 $15,000 Work in Process $10,000 $5,000 Finished Goods $20,000 $35,000 Compute Cost of Goods Manufactured and Cost of Goods Sold. Prepare an 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.
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Costs Incurred: |
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Direct Labor |
$70,000 |
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Purchases of raw materials |
$118,000 |
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Indirect labor for factory |
$30,000 |
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Maintenance, factory equipment |
$6,000 |
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Advertising expense |
$90,000 |
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Insurance, factory equipment |
$800 |
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Sales Department salaries |
$50,000 |
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Rent for factory facilities |
$20,000 |
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Misc. manufacturing supplies |
$4,200 |
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Depreciation, administrative office equipment |
$3,000 |
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Depreciation, factory equipment |
$19,000 |
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Income Taxes |
$40,000 |
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Sales |
$500,000 |
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Beginning |
End of |
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Inventories: |
of Year |
Year |
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Raw Materials |
$7,000 |
$15,000 |
|
Work in Process |
$10,000 |
$5,000 |
|
Finished Goods |
$20,000 |
$35,000 |
Compute Cost of Goods
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