5-31 Straightforward Absorption Statement The Kerwin Company had the following d

Question

5-31 Straightforward Absorption Statement The Kerwin Company had the following data (in thousands) for a given period: Sales Direct materials Direct labor Indirect manufacturing costs Selling and administrative expenses $780 180 230 210 130 There were no beginning or ending inventories. Compute the (1) manufacturing cost of goods sold, (2) gross profit, (3) operating income, and (4) conversion cost (total manufacturing cost less materials cost). 5-32 Straightforward Contribution Income Statement Masa, Ltd., had the following data (in millions of yen) for a given period

Explanation / Answer

Solution:

(a) Manufacturing cost of goods sold (COGs) is calculated as;

COGs = Direct materials + Direct labor + Indirect manufacturing costs

COGs = $180,000 + $230,000 + $210,000

COGs = $620,000

Manufacturing cost of goods sold = $620,000

(b) Gross profit is calculated as;

Gross profit = Sales — Manufacturing cost of goods sold

Gross profit = $780,000 — $620,000

Gross profit = $160,000

(c) Operating income is calculated as;

Operating income = Gross profit — Selling and administrative expenses

Operating income = $160,000 — $130,000

Operating income = $30,000

(d) Conversion cost is calculated as;

Conversion cost = Total manufacturing cost — Materials cost

Conversion cost = $620,000 — $180,000

Conversion cost = $440,000

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