Let\'s try one \"numbers\" exercise to test our knowledge of the basic accountin

Question

Let's try one "numbers" exercise to test our knowledge of the basic accounting terms. Given that sales-12,500 units during the year Cost of good sold $250,000 Beginning inventory of finished goods-$87,000 Cost of goods manufactured $241,000 Gross profit ratio-60% of sales Direct materials used $122,000 Direct labor cost- $74,000 Manufacturing overhead cost $40,000 Beginning Work-in-process- $55,000 Selling and general admin cost- $310,000 The company is subject to a 30% income tax rate. Based on the above information, answer the following questions. [Hint: Net sales Cost of Goods Sold Gross Profit; Gross profit ratio Gross Profit +Net Sales) What was the selling price per unit? 2. Based on your analysis of the cost of goods sold for the year, can you tell if management was able to reduce its investment in finished goods inventory over the year? Explain with computation·[The Schedule of Cost of Goods Sold is mentioned in Chapter 2 of your textbook] 3. Based on your analysis of the firm's manufacturing costs during the year, can you tell if management was able to reduce its investment in work-in-process inventory over the year? Explain with computation. [The Schedule of Cost of Goods Manufactured is mentioned in Chapter 2 of your textbook] 4. The company wanted to maintain a net income margin of at least 7% on its sales during the year. Did manage ent succeed in doing that? Explain with co puta

Explanation / Answer

1 Selling Price per unit Gross Profit Ratio 0.6 Gross Profit/Sales 0.6 Gross Profit=0.6*Sales Gross Profit=Sales-Cost of goods sold 0.6*Sale=Sales-Cost of goods sold (1-0.6)*Sales=Cost of goods sold= $250,000 0.4*Sales $250,000 Sales= $625,000 (250000/0.4) Sales in units          12,500 Selling Price per unit $        50.00 (625000/12500) 2 Investment in finished goods inventory A Beginning inventory in finished goods $87,000 B Cost of goods manufactured $241,000 C=A+B Total finished goods available $328,000 D Cost of goods sold $250,000 E=C-D Ending finished goods inventory $78,000 Ending finished goods inventoryis lower than the Beginning Finished goods inventory Yes,management was able to reduce Investment in finished goods inventory 3 Investment in Work in process F Beginning work in process $55,000 G Direct materials used $122,000 H Direct labor cost $74,000 I Manufactring overhead cost $40,000 J=G+H+I Addition to work in process during the year $236,000 K Cost of goods manufactured $241,000 L=F+J-K Ending work in process $50,000 Ending work in process is less than Beginning work in process Yes,management was able to reduce Investment in work in process 4 Net Income Margin A Sales $625,000 B Cost of goods sold $250,000 C=A-B Gross Profit $375,000 D Selling and administration cost $310,000 E=C-D Earning Before Tax(EBT) $65,000 F=0.3*E Tax $19,500 G=E-F Net Income $45,500 H=G/A Net Income Margin 0.0728 Net Income Margin(percentage) 7.28% Management succeded in maintaining 7% Net Income Margin

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