Managerial Accounting
amadae
week3accounting.docx
(b) Profit Margin Ratio
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Profit Margin Ratio : Net Profit / Net Sales 14,250 / 342,000 4.17%
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Gross Profit Rate
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Gross Profit Ratio : Gross Profit / Net Sales 130,250 / 342,000
38.01% |
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Prepare a correct detailed multiple-step income statement. Assume a tax rate of 25%.
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WRIGHT COMPANY |
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Income Statement |
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For the Month Ended December 31, 2014 |
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Sales Revenues |
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Sales |
972,000 |
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Less: Sales return & Allowances |
46,000 |
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Sales discount |
12,000 |
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Net Sales |
914,000 |
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Cost of goods sold |
548,000 |
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Gross profit |
366,000 |
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Operating Expenses |
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Freight out |
20,000 |
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Office salaries |
54,000 |
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Depreciation on equipment |
4,000 |
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Advertising expense |
12,000 |
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Utilities expenses |
16,000 |
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Rent expense |
18,000 |
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Salaries & wages expense |
98,000 |
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Total operating expenses |
222,000 |
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Income from operations |
144,000 |
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Other revenues and gains |
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Interest revenue |
4,000 |
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Other expenses and losses |
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Interest expense |
3,000 |
1,000 |
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Income before income taxes |
145,000 |
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Income tax expense |
36,250 |
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Net Income |
108,750 |
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a) Determine the Cost of Goods Available for Sale
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Date |
Explanation |
Units |
Unit Cost |
Total Cost |
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Jun. 1 |
Balance |
1,200 |
$3 |
$3,600 |
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Jun. 3 |
Purchase |
4,000 |
$3 |
$12,000 |
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Jun.18 |
Purchase |
7,500 |
$5 |
$37,500 |
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Jun. 29 |
Purchase |
4,000 |
$6 |
$24,000 |
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Total |
16,700 |
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$77,100 |
(b) Determine the ending inventory and cost of goods sold under each of the assumed cost flow methods. Prove the accuracy of the cost of goods sold under FIFO and LIFO.
FIFO
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(1) Ending Inventory |
(2) Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
Cost of goods available for sale |
77,100 |
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Jun. 18 |
2,200 |
$5 |
11,000 |
Less: ending inventory |
35,000 |
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Jun.29 |
4,000 |
$6 |
24,000 |
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Total |
6,200 |
Total |
35,000 |
Cost of Goods Sold |
42,100 |
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Proof of Cost of Goods Sold (FIFO) |
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Date |
Units |
Unit Cost |
Total Cost |
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Jun. 1 |
1,200 |
$3 |
3,600 |
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Jun. 3 |
4,000 |
$3 |
12,000 |
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Jun. 18 |
5,300 |
$5 |
26,500 |
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Total |
10,500 |
Total |
42,100 |
LIFO
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(1) Ending Inventory |
(2) Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
Cost of goods available for sale |
77,100 |
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Jun. 1 |
1,200 |
$3 |
3,600 |
Less: ending inventory |
20,600 |
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Jun. 3 |
4,000 |
$3 |
12,000 |
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Jun. 18 |
1,000 |
$5 |
5,000 |
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Total |
6,200 |
Total |
20,600 |
Cost of Goods Sold |
56,500 |
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Proof of Cost of Goods Sold (LIFO) |
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Date |
Units |
Unit Cost |
Total Cost |
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Jun. 18 |
6,500 |
$5 |
32,500 |
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Jun. 29 |
4,000 |
$6 |
24,000 |
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Total |
10,500 |
Total |
56,500 |
AVERAGE COST (Round to the nearest decimal, i.e., $1.01)
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(1) Ending Inventory |
(2) Cost of Goods Sold |
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Units |
Unit Cost |
Total Cost |
Cost of goods available for sale |
77,100 |
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6,200 |
$4.62 |
28,624 |
Less: ending inventory |
28,624 |
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Total |
6,200 |
Total |
28,624 |
Cost of Goods Sold |
48,476 |
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?
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(1) the highest inventory amount for the balance sheet FIFO METHOD $35,000
(2) the highest cost of goods sold for the income
LIFO METHOD $56,500
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(a) Determine the Cost of Goods Available for Sale
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Date |
Explanation |
Units |
Unit Cost |
Total Cost |
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Jan. 1 |
Balance |
200 |
$6 |
1,200 |
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Jan. 24 |
Purchase |
800 |
$7 |
5,600 |
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Apr. 12 |
Purchase |
400 |
$8 |
3,200 |
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Aug. 19 |
Purchase |
600 |
$9 |
5,400 |
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Nov. 30 |
Purchase |
350 |
$10 |
3,500 |
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Total |
2,350 |
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18,900 |
(b) Determine the ending inventory and the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO and average-cost). Prove the accuracy of the cost of goods sold under each method.
FIFO
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(1) Ending Inventory |
(2) Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
Cost of goods available for sale |
18,900 |
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Aug. 19 |
100 |
$9 |
900 |
Less: ending inventory |
4,400 |
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Nov. 30 |
350 |
$10 |
3,500 |
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Total |
450 |
Total |
4,400 |
Cost of Goods Sold |
14,500 |
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Proof of Cost of Goods Sold (FIFO) |
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Date |
Units |
Unit Cost |
Total Cost |
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Jan. 1 |
200 |
$6 |
1,200 |
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Jan. 24 |
800 |
$7 |
5,600 |
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Aug. 19 |
400 |
$8 |
3,200 |
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Nov. 30 |
500 |
$9 |
4,500 |
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Total |
1,900 |
Total |
14,500 |
LIFO
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(1) Ending Inventory |
(2) Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
Cost of goods available for sale |
18,900 |
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Jan. 1 |
200 |
$6 |
1,200 |
Less: ending inventory |
2,950 |
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Jan. 24 |
250 |
$7 |
1,750 |
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Total |
450 |
Total |
2,950 |
Cost of Goods Sold |
15,950 |
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Proof of Cost of Goods Sold (LIFO) |
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Date |
Units |
Unit Cost |
Total Cost |
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Jan. 24 |
550 |
$7 |
3,850 |
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Apr.12 |
400 |
$8 |
3,200 |
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Aug.19 |
600 |
$9 |
5,400 |
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Nov. 30 |
350 |
$10 |
3,500 |
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Total |
1,900 |
Total |
15,950 |
AVERAGE COST (Round to the nearest decimal, i.e., $1.01)
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(1) Ending Inventory |
(2) Cost of Goods Sold |
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Units |
Unit Cost |
Total Cost |
Cost of goods available for sale |
18,900 |
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450 |
$8.04 |
3,619 |
Less: ending inventory |
3,619 |
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Total |
450 |
Total |
3,619 |
Cost of Goods Sold |
15,281 |
(c) Which cost flow method results in the lowest inventory amount for the balance sheet? The lowest cost of goods sold for the income statement?
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Enter your answer here (1) the lowest inventory amount for the balance sheet LIFO METHOD $2,950
(2) The lowest cost of goods sold for the income statement? FIFO METHOD $14,500
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Week Three
Assignment #3
Week Three Homework Problems
Complete problems
E5-2,
EXERCISE 5-2
Sept. 6 Inventory 1,650
Accounts Payable 1,650
9 Inventory 50
Cash 50
10 Accounts Payable 66
Inventory 66
12 Accounts Receivable 690
Sales Revenue 690
Cost of Goods Sold 520
Inventory 520
EXERCISE 5-2 (Continued)
Sept. 14 Sales Returns and Allowances 45
Accounts Receivable 45
14 Inventory 34
Cost of Goods Sold 34
20 Accounts Receivable 760
Sales Revenue 760
Cost of Goods Sold 570
Inventory 570
E5-6
EXERCISE 5-6
(a) ZHOU Co.
Income Statement
For the Month Ended January 31, 2014
Sales
Sales revenue $370,000
Less: Sales returns and allowances $20,000
Sales discounts 8,000 28,000
Net sales 342,000
Cost of goods sold 212,000
Gross profit 130,000
Operating expenses
Salaries and wages expense 60,000
Rent expense 32,000
Insurance expense 12,000
Freight-out 7,000
Total operating expenses 111,000
Income before income taxes 19,000
Income tax expense 4,750
Net income $ 14,250
and P5-5B from Chapter 5 and
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PROBLEM 5-5B |
WRIGHT COMPANY
Income Statement
For the Year Ended December 31, 2014
Sales
Sales revenue $972,000
Less: Sales returns and
allowances $ 46,000
Sales discounts 12,000 58,000
Net sales 914,000
Cost of goods sold 548,000
Gross profit 366,000
Operating expenses
Salaries and wages expense 152,000
Freight-out 20,000
Rent expense ($20,000 – $2,000) 18,000
Utilities expense 16,000*
Advertising expense 12,000
Depreciation expense 4,000
Total operating expenses 222,000
Income from operations 144,000
Other revenues and gains
Interest revenue 4,000
Other expenses and losses
Interest expense 3,000
Net income $145,000
*($13,000 + $3,000)
Problems 6-2B and
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PROBLEM 6-2B |
(a) COST OF GOODS AVAILABLE FOR SALE
Date Explanation Units Unit Cost Total Cost
June 1 Beginning inventory 1,200 $3 $ 3,600
3 Purchase 4,000 3 12,000
18 Purchase 7,500 5 37,500
29 Purchase 4,000 6 24,000
Total 16,700 $77,100
(b) FIFO
(1) Ending Inventory (2) Cost of Goods Sold
Unit Total Cost of goods
Date Units Cost Cost available for sale $77,100
June 29 4,000 $6 $24,000 Less: Ending
18 2,200 5 11,000 inventory 35,000
6,200* $35,000 Cost of goods sold $42,100
*16,700 – 10,500 = 6,200
Proof of Cost of Goods Sold
Unit Total
Date Units Cost Cost
June 1 1,200 $3 $ 3,600
3 4,000 3 12,000
18 5,300 5 26,500
10,500 $42,100
PROBLEM 6-2B (Continued)
LIFO
(1) Ending Inventory (2) Cost of Goods Sold
Unit Total Cost of goods
Date Units Cost Cost available for sale $77,100
June 1 1,200 $3 $ 3,600 Less: Ending
3 4,000 3 12,000 inventory 20,600
18 1,000 5 5,000 Cost of goods sold $56,500
6,200 $20,600
Proof of Cost of Goods Sold
Unit Total
Date Units Cost Cost
June 29 4,000 $6 $24,000
18 6,500 5 32,500
10,500 $56,500
AVERAGE-COST
(1) Ending Inventory (2) Cost of Goods Sold
Cost of goods
$77,100 ÷ 16,700 = $4.617 available for sale $77,100
Less: Ending
Unit Total inventory 28,625
Units Cost Cost Cost of goods sold $48,475
6,200 $4.617 $28,625*
*Rounded
(c) (1) As shown in (b), due to rising prices, FIFO produces the highest inventory amount, $35,000.
(2) As shown in (b), due to rising prices, LIFO produces the highest cost of goods sold, $56,500.
6-3B from Chapter 6
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PROBLEM 6-3B |
(a) COST OF GOODS AVAILABLE FOR SALE
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Date |
Explanation |
Units |
Unit Cost |
Total Cost |
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Jan. 1 |
Beginning inventory |
200 |
$ 6 |
$ 1,200 |
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Jan. 24 |
Purchase |
800 |
7 |
5,600 |
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Apr. 12 |
Purchase |
400 |
8 |
3,200 |
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Aug. 19 |
Purchase |
600 |
9 |
5,400 |
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Nov. 30 |
Purchase |
350 |
10 |
3,500 |
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Total |
2,350 |
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$18,900 |
(b) FIFO
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(1) Ending Inventory |
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(2) Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
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Cost of goods available for sale |
$18,900 |
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Nov. 30 |
350 |
$10 |
$3,500 |
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Less: Ending |
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Aug. 19 |
100 |
9 |
900 |
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inventory |
4,400 |
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450* |
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$4,400 |
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Cost of goods sold |
$14,500 |
*2,350 – 1,900 = 450
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Proof of Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
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Jan. 1 |
200 |
$6 |
$ 1,200 |
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Jan. 24 |
800 |
7 |
5,600 |
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Apr. 12 |
400 |
8 |
3,200 |
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Aug. 19 |
500 |
9 |
4,500 |
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1,900 |
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$14,500 |
PROBLEM 6-3B (Continued)
LIFO
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(1) Ending Inventory |
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(2) Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
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Cost of goods available for sale |
$18,900 |
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Jan. 1 |
200 |
$6 |
$1,200 |
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Less: Ending |
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Jan. 24 |
250 |
7 |
1,750 |
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inventory |
2,950 |
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450 |
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$2,950 |
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Cost of goods sold |
$15,950 |
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Proof of Cost of Goods Sold |
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Date |
Units |
Unit Cost |
Total Cost |
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Nov. 30 |
350 |
$10 |
$ 3,500 |
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Aug. 19 |
600 |
9 |
5,400 |
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Apr. 12 |
400 |
8 |
3,200 |
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Jan. 24 |
550 |
7 |
3,850 |
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1,900 |
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$15,950 |
AVERAGE-COST
(1) Ending Inventory (2) Cost of Goods Sold
Cost of goods
$18,900 ÷ 2,350 = $8.042 available for sale $18,900
Less: Ending
Unit Total inventory 3,619
Units Cost Cost Cost of goods sold $15,281
450 $8.042 $3,619
(c) Due to rising prices, LIFO results in the lowest inventory amount for the balance sheet, $2,950.
FIFO results in the lowest cost of goods sold for the income statement $14,500.
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