Hermon Company, a manufacturing company, produces a single product. The followin
ID: 2417180 • Letter: H
Question
Hermon Company, a manufacturing company, produces a single product. The following information has been taken from the company's production, sales, and cost records for the just completed year. Hermon Company Production in units 29,000 Sales in units ? Ending finished goods inventory in units ? Sales in dollars $1,300,000 Costs: Advertising $105,000 Entertainment and travel $40,000 Direct labor $90,000 Indirect labor $85,000 Raw materials purchased $480,000 Building rent (production uses 80% of the space; administrative and sales offices use the rest) $40,000 Utilities, factory $108,000 Royalty paid for use of production patent, $1.50 per unit produced ? Maintenance, factory $9,000 Rent for special production equipment, $7,000 per year plus $0.30 per unit produced ? Selling and administrative salaries $210,000 Other factory overhead costs $6,800 Other selling and administrative expenses $17,000 Inventories: Beginning End of of the Year theYear Raw materials $20,000 $30,000 Work in process $50,000 $40,000 Finished goods $0 ? The finished goods inventory is being carried at the average unit production cost for the year. The selling price is $50 per unit. Required: Use the P3 Solution Sheet 1. Prepare a schedule of cost of goods manufactured for the year. 2. Compute the following: a. The number of units in the finished goods inventory at the end of the year. b. The cost of the units in the finished goods inventory at the end of the year. 3. Prepare an income statement for the year. show all work Hermon Company, a manufacturing company, produces a single product. The following information has been taken from the company's production, sales, and cost records for the just completed year. Hermon Company Production in units 29,000 Sales in units ? Ending finished goods inventory in units ? Sales in dollars $1,300,000 Costs: Advertising $105,000 Entertainment and travel $40,000 Direct labor $90,000 Indirect labor $85,000 Raw materials purchased $480,000 Building rent (production uses 80% of the space; administrative and sales offices use the rest) $40,000 Utilities, factory $108,000 Royalty paid for use of production patent, $1.50 per unit produced ? Maintenance, factory $9,000 Rent for special production equipment, $7,000 per year plus $0.30 per unit produced ? Selling and administrative salaries $210,000 Other factory overhead costs $6,800 Other selling and administrative expenses $17,000 Inventories: Beginning End of of the Year theYear Raw materials $20,000 $30,000 Work in process $50,000 $40,000 Finished goods $0 ? The finished goods inventory is being carried at the average unit production cost for the year. The selling price is $50 per unit. Required: Use the P3 Solution Sheet 1. Prepare a schedule of cost of goods manufactured for the year. 2. Compute the following: a. The number of units in the finished goods inventory at the end of the year. b. The cost of the units in the finished goods inventory at the end of the year. 3. Prepare an income statement for the year. show all workExplanation / Answer
Hermon Company
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning ..................... $ 20,000
Add: Purchases of raw materials.......................... 480,000
Raw materials available for use ........................... 500,000
Deduct: Raw materials inventory, ending ............. 30,000
Raw materials used in production........................ $470,000
Direct labor........................................................... 90,000
Manufacturing overhead ........................................ 300,000
Total manufacturing costs...................................... 860,000
Add: Work in process inventory, beginning............. 50,000 910,000
Deduct: Work in process inventory, ending............. 40,000
Cost of goods manufactured .................................. $870,000
2. a. To compute the number of units in the finished goods inventory at the end of the year, we must first compute the number of units sold during the year.
Total sales $1,300,000 / Unit selling price $50 per unit sold = $26000
Units in the finished goods inventory, beginning ... 0
Units produced during the year ............................ 29,000
Units available for sale......................................... 29,000
Units sold during the year (above) ...................... 26,000 Units in the finished goods inventory, ending........ 3,000
b. The average production cost per unit during the year is:
Cost of goods manufactured $870,000 /Number of units produced 29,000 units =$30 per unit
Thus, the cost of the units in the finished goods inventory at the end of the year is:
3,000 units × $30 per unit = $90,000.
Hermon Company
Income Statement
Sales ........................................................... $1,300,000
Cost of goods sold: Finished goods inventory, beginning........... $ 0
Add: Cost of goods manufactured .............. 870,000
Goods available for sale ............................. 870,000
Finished goods inventory, ending ............... 90,000 780,000
Gross margin ............................................... 520,00
0 Selling and administrative expenses .............. 380,000
Net operating income................................... $ 140,000