2-37 Cost of goods manufactured, income statement, manufacturing company.
1. Peterson Company
Schedule of Cost of Goods Manufactured
Year Ended December 31, 2017
(in thousands)
Direct materials cost
Beginning inventory, January 1, 2017 $ 21,000
Purchases of direct materials 74,000
Cost of direct materials available for use 95,000
Ending inventory, December 31, 2017 23,000
Direct materials used $ 72,000
Direct manufacturing labor costs 22,000
Indirect manufacturing costs
Indirect manufacturing labor 17,000
Plant insurance 7,000
Depreciation—plant building & equipment 11,000
Repairs and maintenance—plant 3,000
Total indirect manufacturing costs 38,000
Manufacturing costs incurred during 2017 132,000
Add beginning work-in-process inventory, January 1, 2017 26,000
Total manufacturing costs to account for 158,000
Deduct ending work-in-process inventory, December 31, 2017 25,000
Cost of goods manufactured (to Income Statement) $133,000
2. Peterson Company
Income Statement
Year Ended December 31, 2017
(in thousands)
Revenues $310,000
Cost of goods sold:
Beginning finished goods, January 1, 2017 $ 13,000
Cost of goods manufactured 133,000
Cost of goods available for sale 146,000
Ending finished goods, December 31, 2017 20,000
Cost of goods sold 126,000
Gross margin 184,000
Operating costs:
Marketing, distribution, and customer-service costs 91,000
General and administrative costs 24,000
Total operating costs 115,000
Operating income $ 69,000
3-21 CVP computations. Fill in the blanks for each of the following independent cases.
SOLUTION
Variable Fixed Total Operating Contribution Operating Contribution
Revenues Costs Costs Costs Income Margin Income % Margin %
a. $4,250 $1,700 $1,800 $3,500 $750 $2,550 17.65% 60.00%
b. 8,000 5,000 1,000 6,000 2,000 3,000 25.00% 37.50%
c. 6600 3500 900 4400 2,200 3,100 33.33% 46.97%
d. 7,400 2,400 1800 4,200 3,200 5,000 43.24% 67.57%
3-23 CVP analysis, changing revenues and costs.
SOLUTION
1a. SP = 10% × $1,300 = $130 per ticket
VCU = $34 per ticket
CMU = $130 – $34 = $96 per ticket
FC = $36,000 a month
FC $36,000
Q = CMU = $96 per ticket
= 375 tickets
FC + TOI $36,000 + $12,000
1b. Q = CMU = $96 per ticket
$48,000
= $96 per ticket
= 500 tickets
2a. SP = $130 per ticket
VCU = $30 per ticket
CMU = $130 – $30 = $100 per ticket
FC = $36,000 a month
FC $36,000
Q = CMU = $100 per ticket
= 360 tickets
FC + TOI $36,000 + $12,000
2b. Q = CMU = $100 per ticket
$48,000
= $100 per ticket
= 480 tickets
3a. SP = $46 per ticket
VCU = $30 per ticket
CMU = $46 – $30 = $16 per ticket
FC = $36,000 a month
FC $36,000
Q = CMU = $16 per ticket
= 2,250 tickets
FC + TOI $36,000 + $12,000
3b. Q = CMU = $16 per ticket
$48,000
= $16 per ticket
= 3,000 tickets
The reduced commission sizably increases the breakeven point and the number of tickets required
to yield a target operating income of $12,000:
10%
Commission Fixed
(Requirement 2) Commission of $60
Breakeven point 360 2,250
Attain OI of $12,000 480 3,000
4a. The $8 delivery fee can be treated as either an extra source of revenue (as done below) or
as a cost offset. Either approach increases CMU $8:
SP = $54 ($46 + $8) per ticket
VCU = $30 per ticket
CMU = $54 – $30 = $24 per ticket
FC = $36,000 a month
FC $36,000
Q = CMU = $24 per ticket
= 1,500 tickets
FC + TOI $36,000 + $12,000
4b. Q = CMU = $24 per ticket
$48,000
= $24 per ticket
= 2,000 tickets
The $8 delivery fee results in a higher contribution margin, which reduces both the breakeven
point and the tickets sold to attain operating income of $12,000.
3-54 Deciding where to produce.
SOLUTION
Los Barrios Ascó
Selling price $200.00 $200.00
Variable cost per unit
Manufacturing $80.00 $100.00
Marketing and distribution 20.00 100.00 25.00 125.00
Contribution margin per unit (CMU) $100.00 $75.00
Fixed costs per unit
Manufacturing 35.00 26.00
Marketing and distribution 30.00 65.00 24.00 50.00
Operating income per unit $35.00 $25.00
CMU of normal production (as shown above) $100.00 $75.00
CMU of overtime production 95.00 65.00
($100 - $5; $75 - $10)
1.
Annual fixed costs = Fixed cost per unit
Daily production rate Normal annual
capacity
($65 500 units 240 days;
$50 400 units 240 days) $7,800,000 $4,800,000
Breakeven volume = FC CMU of normal
production ($7,800,000 $100; $4,800,000
75) 78,000 units 64,000 units
2.
Units produced and sold 120,000 120,000
Normal annual volume (units)
(500 × 240; 400 × 240) 120,000 96,000
Units over normal volume (needing overtime) 0 24,000
CM from normal production units (normal
annual volume CMU normal production)
(120,000 × $100; 96,000 × 75) $12,000,000 $7,200,000
CM from overtime production units
(0; 24,000 ($75-10) 0 1,560,000
Total contribution margin $12,000,000 8,760,000
Total fixed costs 7,800,000 4,800,000
Operating income $4,200,000 $3,960,000
Total operating income $8,160,000
3. The optimal production plan is to produce 150,000 units at the Los Barrios plant and 90,000
units at the Ascóplant. The full capacity of the Los Barrios plant, 150,000 units (500 units ×
300 days), should be used because the contribution from these units is higher at all levels of
production than is the contribution from units produced at the Ascóplant.
Calculation:
Los Barrios Ascó
Maximum capacity: 150,000 units (500*300) 120,000 units (400*300)
CM (Normal): $100/unit $75/unit
CM (Overtime): $95/unit (100-5) $65/unit (100-10)
Ideal allocation for 240,000
150,000 units 90,000 units
units production:
