Pro-Leather Company is a manufacturer of leather cases for tablets. The following information pertains to operations during the 2020 calendar year. Sales Revenue $14,275,000 Direct Factory Labor 3,952,600 Indirect Factory Labor 1,232,250 Total Depreciation 1 400,000 Total Utilities 2 525,000 Distribution & Customer Service Costs 76,800 Insurance on Plant & Equipment 585,000 Property Taxes 3 90,000 Administrative Wages & Salaries 1,076,000 Advertising Expenses 57,700 Sales Commission 6% of Sales Revenue a) Of the total depreciation, 80% relates to factory plant & equipment and 20% relates to general and administrative costs. b) Of the total utilities, 75% relates to production and 25% relates to general and administrative costs. c) The property taxes should be shared: 85% production & 15% general & administrative costs. The following additional information is also available: Inventory Data: 1/1/2020 Purchases 31/12/2020 Raw Materials $750,000 $4,330,000 $807,000 Indirect Materials 55,000 320,000 71,500 Work in Progress 1,115,400 n/a 924,000 Finished Goods 1,142,600 n/a 1,720,200 Required: What is the factory cost per case if Pro-Leather manufactured 19,200 cases for tablets for the year? How does the format of the income statement for a manufacturing concern differ from the income statement of a merchandising entity?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Pro-Leather Company is a manufacturer of leather cases for tablets. The following information pertains to operations during the 2020 calendar year.
|
Sales Revenue |
$14,275,000 |
|
Direct Factory Labor |
3,952,600 |
|
Indirect Factory Labor |
1,232,250 |
|
Total Depreciation 1 |
400,000 |
|
Total Utilities 2 |
525,000 |
|
Distribution & Customer Service Costs |
76,800 |
|
Insurance on Plant & Equipment |
585,000 |
|
Property Taxes 3 |
90,000 |
|
Administrative Wages & Salaries |
1,076,000 |
|
Advertising Expenses |
57,700 |
|
Sales Commission |
6% of Sales Revenue |
a) Of the total depreciation, 80% relates to factory plant & equipment and 20% relates to general and administrative costs.
b) Of the total utilities, 75% relates to production and 25% relates to general and administrative costs.
c) The property taxes should be shared: 85% production & 15% general & administrative costs.
The following additional information is also available:
|
Inventory Data: |
1/1/2020 |
Purchases |
31/12/2020 |
|
Raw Materials |
$750,000 |
$4,330,000 |
$807,000 |
|
Indirect Materials |
55,000 |
320,000 |
71,500 |
|
Work in Progress |
1,115,400 |
n/a |
924,000 |
|
Finished Goods |
1,142,600 |
n/a |
1,720,200 |
Required:
- What is the
factory cost per case if Pro-Leather manufactured 19,200 cases for tablets for the year? - How does the format of the income statement for a manufacturing concern differ from the income statement of a merchandising entity?
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