Sylvia Corporation sold 12,500 units of its single product during the year, reporting a cost of goods sold that totaled $250,000. A review of the company's accounting records disclosed the following information:Cost of goods sold as a percentage of sales revenue40%Finished goods, Jan. 1$87,000Work-in-process, Dec. 3155,000Cost of Goods Manufactured241,000Raw materials used40,000Direct labor74,000Manufacturing overhead122,000Selling and administrative expenses 310,000Sylvia is subject to a 30% income tax rate.Required:A. Determine the selling price per unit.B. Management established a goal at the beginning of the year to reduce the company's investment in finished-goods inventory and work-in-process inventory.1. Analyze cost of goods sold and determine if management's goal was achieved
with respect to finished-goods inventory. Show computations.2. Analyze the firm's manufacturing costs and determine if management's goal was achieved with respect to work-in-process inventory. Show computations.C. Is the company profitable? Show calculations.
What will be an ideal response?
Solution:
A. Let X = sales revenue
0.4X = $250,000
X = $625,000
Sales revenue ($625,000) units sold (12,500) = $50 selling price
B.
| 1. | Cost of goods sold: | ? |
| ? | Finished goods, Jan. 1 | $ 87,000 |
| ? | Add: Cost of goods manufactured | 241,000 |
| ? | Cost of good available for sale | $328,000 |
| ? | Deduct: Finished goods, Dec. 31 | ??????? |
| ? | Cost of goods sold | $250,000 |
Ending finished-goods inventory totals $78,000 ($328,000 - $250,000), which means that inventory was reduced by $9,000 ($87,000 - $78,000) and management was successful in achieving its goal.
2.Cost of goods manufactured:
| ? | Raw materials used | $ 40,000 |
| ? | Direct labor | 74,000 |
| ? | Manufacturing overhead | 122,000 |
| ? | Total manufacturing costs | $ 236,000 |
| ? | Add: Work in process, Jan. 1 | ???????? |
| ? | ? | $ ??????? |
| ? | Deduct: Work in process, Dec. 31 | 55,000 |
| ? | Cost of Goods manufactured | $ 241,000 |
Let X = work in process, Jan. 1
$236,000 + X - $55,000 = $241,000
X = $60,000
Yes, management achieved its goal because work-in-process inventory fell by $5,000 ($60,000 - $55,000).
C.
| Sales Revenue | $625,000 |
| Less: Cost of Goods sold | 250,000 |
| Gross Margin | $375,000 |
| Less: Selling and administrative expenses | 310,000 |
| Income before taxes | $ 65,000 |
| Income tax expense ($65,000 x 30%) | 19,500 |
| Net income | $ 45,500 |
Yes, the company is profitable.
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