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Problem 8.8: Cost of goods manufactured and income statement

The following accounts and amounts were taken from the records of Prider Manufacturers Ltd at 30 June 2014:

Advertising expense 60,000 Administrative office rent 30,000

Sales travel expense 18,300 Office salaries 211,200

Depreciation-factory machine 19,200 Rates-factory 24,000

Depreciation-office equipment 7,200 Discount raw materials 4,000

Direct labour 195,000 Raw materials inven 1/7/13 57,600

Factory power 18,000 Raw materials inven 30/6/14 62,400

Factory rent 120,000 Raw materials purchase 640,000

Factory supplies 148,000 Sales revenue 1,900,000

Finished goods, 1/7/13 130,000 Sales returns 31,400

Finished goods, 30/6/14 125,000 Sales commission 57,300

Freight inwards 8,700 Work in process 1/7/13 27,000

Indirect labour 64,000 Work in process 30/6/14 30,000

Machinery repairs 38,900

Required:

A.Prepare a cost of goods manufacture statement for the year ended 30 June 2014

Prider Manufacturer's Ltd

COST OF GOODS MANUFACTURED STATEMENT

FOR THE YEAR ENDED 30 JUNE 2014

DIRECT MATERIALS

BEGINNING RAW MATERIALS $57,600.00

ADD PURCHASES OF RAW MATERIALS $640,000.00

ADD Freight inwards $8,700.00

Less Discount for Raw Materials -$4,000.00

LESS ENDING RAW MATERIALS -$62,400.00

$639,900.00

DIRECT LABOUR $195,000.00

FACTORY OVERHEAD

INDIRECT LABOUR $64,000.00

Facotry Power $18,000.00

Depreciation Factory machine $19,200.00

Factory rent $120,000.00

Facotry supplies $148,000.00

Facotry rates $24,000.00

$393,200.00

MANUFACTURING COSTS FOR THE PERIOD $1,228,100.00

ADD BEGINNING WORK IN PROGRESS $27,000.00

LESS ENDING WORK IN PROGRESS -$30,000.00

-$3,000.00

COST OF GOODS MANUFACTURED $1,225,100.00

B.Prepare an income statement for the year ended 30 June 2014

Prider Manufacturer's Ltd Income Statement

FOR THE YEAR ENDED 30 JUNE 2014

INCOME

Sales Revenue $1,900,000.00

LESS Sales Returns -$31,400.00

Net Sales Revenue $1,868,600.00

LESS COST OF SALES

Beginning Finished Goods Inventory $130,000.00

Add Cost of Goods Manufactured $1,225,100.00

LESS Ending Finished Goods -$125,000.00

$1,230,100.00

Gross Profit $638,500.00

EXPENSES

Advertising Expense $60,000.00

Sales Travel Expenses $18,300.00

Depreciation office equipment $7,200.00

Administrative Office rent $30,000.00

Machinery Repairs $38,900.00

Sales Commission $57,300.00

-$211,700.00

Net Profit $426,800.00

C.The industry average for gross profit margin is 30% and the profit margin is 10%. Explain how Prider Manufacturers Ltd's financial performance compares with the industry average.

Prider Manufacturer's Ltd financial performance compared to the industry is better as it shows it is able to earn a reasonable profit on sales