Question
Samuel Jones, owner of The Easy Juice Company was very happy to see that the innovative new kitchen juice he had started producing in September
Samuel Jones, owner of The Easy Juice Company was very happy to see that the innovative new kitchen juice he had started producing in September 2020 was highly profitable. It was apparent to him that the unique design of the juicer and the selling price of $45 were just what customers wanted. Because of excellent fiscal results, Samuel is beginning to make plans to increase production. Decembers production had been 2,000 juicers and Samuel would like to produce twice that amount. Before he signs a contract to build a new manufacturing factory, he has asked for your advice. He has provided you with the following information, which was prepared by Samuels sales manager, Yini. Yini has studied sales and marketing but has never studied accounting.
Sales ($45 per juicer) 78,500
Less Expenses
Sales and Administrative salaries 7,500
Rent and Utilities 15,000
Depreciation, sales equipment 1,500
Advertising 2,000 29,000
Operating Income 49,500
Additional Information
- 75% of the rent and utilities applies to factory operations.
- 100% of the advertising cost related to the kitchen juicers.
- Raw materials inventory at the beginning of December was $10,000 and at the end of December was $4,000
- Work in process inventory at the beginning of December was $8,000 and at the end of December was $5,500.
- There was no finished goods inventory at the beginning of December.
- There was no over or under applied overhead.
- The following additional costs were incurred curing December 2020.
Purchases of raw materials 35,000
Indirect factory labour 5,000
Direct factory labour- 8,300
Depreciation, factory equipment 5,600
Maintenance, factory 4,300.
- Prepare a Cost of Goods Manufactured schedule for December.
- Determine the Cost of Goods Sold and Cost of Ending Finished Goods Inventory for December.
- Prepare an Income Statement for December.
- What advice would you give Samuel expanding production of the kitchen juicers? Please clearly state whether you think Samuel should expand operations and provide three specific and separate points that Samuel should consider in making his decision.
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