a.
Classify the items that will come under the product cost and calculate the amount of cost of goods sold for the year 2017 income statement.
a.
Answer to Problem 2ATC
The items that will be classified under the product cost are as follows:
Table (1)
Hence, the total product cost of Company VH is $2,776,000.
The calculation of cost of goods sold is as follows:
Hence, the cost of goods sold is $2,400,000.
Explanation of Solution
The cost of goods sold:
The cost of goods sold is the total of all the expenses incurred by a company to sell the goods during the given period.
Working notes:
Calculate the per square foot as follows:
Hence, the per square foot value is $1.60.
Calculate the utility cost for manufacturing as follows:
Hence, the utility cost for manufacturing is $96,000.
(1)
Calculate the depreciation on manufacturing equipment as follows:
Hence, the depreciation cost is $1,000,000.
(2)
Calculate the cost per unit as follows:
Hence, the cost per unit is $40.
(3)
Classify the items that will come under the upstream cost and calculate the amount of upstream cost expensed for the year 2017 income statement.
Answer to Problem 2ATC
The items that will be classified under the upstream cost are as follows:
Table (2)
Hence, the total upstream expenses are $608,000.
Explanation of Solution
Upstream cost:
This cost is incurred before starting the manufacturing process. For example: research and development, and product design.
Working notes:
Calculate the per square foot as follows:
Hence, the per square foot value is $1.60.
Calculate the utility cost for manufacturing as follows:
Hence, the utility cost for manufacturing is $16,000
(4)
Calculate the amount of prepaid insurance as follows:
Hence, the prepaid insurance is $48,000.
Calculate the rate for insurance expenses as follows:
Hence, the rate for insurance expenses per employee is $4,000.
Calculate the insurance expenses on research and development as follows:
Hence, the insurance expenses on research and development is $16,000.
(5)
Note:
The accrued engineer’s salary $10,000 comes under the upstream cost but it is not considered for calculating the upstream cost because it is previous year’s cost.
Classify the items that will come under the downstream cost and calculate the amount of downstream cost expensed for the year 2017 income statement.
Answer to Problem 2ATC
The items that will be classified under the downstream cost are as follows:
Table (3)
Hence, the total downstream expenses are $824,000.
Explanation of Solution
Downstream:
This cost is incurred after starting the manufacturing process. For example: marketing, distribution, and customer service.
Working notes:
Calculate the per square foot as follows:
Hence, the per square foot value is $1.60.
Calculate the utility cost for selling and administrative as follows:
Hence, the utility cost for selling and administrative cost is $48,000.
(6)
Calculate the amount of prepaid insurance as follows:
Hence, the prepaid insurance is $48,000.
Calculate the total salary as follows:
Hence, the total salary is $674,000.
(7)
Calculate the rate for insurance expenses as follows:
Hence, the rate for insurance expenses per employee is $4,000.
Calculate the insurance expenses on selling and administrative as follows:
Hence, the insurance expenses on selling and administrative is $32,000.
(8)
b.
Prepare the income statement.
b.
Answer to Problem 2ATC
The calculation of the income statement is as follows:
Table (4
Hence, the net income of Company VH is $368,000.
Explanation of Solution
Income statement:
Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.
Working notes:
Calculate the revenue as follows:
Hence, the revenue is $4,200,000.
(9)
Calculate the cost of goods sold as follows:
The calculation of cost of goods sold is as follows:
Hence, the cost of goods sold is $2,400,000.
(10)
Calculate the upstream expenses as follows:
Table (5)
Hence, the total upstream expenses are $608,000.
(11)
Calculate the downstream expenses as follows:
Table (6)
Hence, the total downstream expenses are $824,000.
(12)
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Chapter 10 Solutions
Survey Of Accounting
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