Orman Company produces neon-colored covers for tablets (e.g., iPads). For last y

Question

Orman Company produces neon-colored covers for tablets (e.g., iPads). For last year, Orman reported the following: Work-in-process inventory, January 1 $ 13,250 Work-in-process inventory, December 31 28,250 Finished goods inventory, January 1 113,000 Finished goods inventory, December 31 85,000 Direct materials inventory, January 1 3,450 Direct materials inventory, December 31 2,700 Direct materials purchased 183,750 Direct labor 138,000 Plant depreciation 19,500 Salary, production supervisor 47,000 Indirect labor 68,300 Utilities, factory 15,700 Sales commissions 42,000 Salary, sales supervisor 75,000 Depreciation, factory equipment 32,000 Administrative expenses 168,000 Supplies (40% used in the factory, 60% used in the sales office) 18,000 Advertising expense 43,600 Last year, Orman produced 89,000 units and sold 90,500 units at $10.50 per unit. Required: 1. Prepare a statement of cost of goods manufactured. Orman Company Statement of Cost of Goods Manufactured For Last Year Direct materials: $ Direct materials used in production $ Manufacturing overhead: $ Total manufacturing costs added $ Cost of goods manufactured $ 2. Prepare an absorption-costing income statement. Orman Company Income Statement: Absorption Costing For Last Year $ Cost of goods sold: $ $ $ Less operating expenses: $ $

Explanation / Answer

STATEMENT OF COST OF GOODS MANUFACTURED Direct Materials: Beginning inventory 3450 Add: Purchases 183750 Total material available for use 187200 Less: Ending inventory 2700 Direct materials used in production 184500 Direct labor 138000 Manufacturing overhead: Plant depreciation 19500 Salary, production supervisor 47000 Indirect labor 68300 Utilities, factory 15700 Depreciation-Factory equipment 32000 Supplies expense (18000*40%) 7200 189700 Total manufacturing costs added 512200 Add: Beginning WIP inventory 13250 Total manufacturing costs 525450 Less: Ending WIP inventory 28250 Cost of goods manufactured 497200 INCOME STATEMENT - ABSORPTION COSTING Sales (90500*10.50) 950250 Cost of goods sold: Beginning inventory of finished goods 113000 Add: Cost of goods manufactured 497200 Total finished goods available for sale 610200 Less: Ending inventory of finished goods 85000 Cost of goods sold 610200 Gross profit 340050 Operating expenses: Sales commissions 42000 Salaries, sales supervisor 75000 Administrative expenses 168000 Supplies expense (18000*60%) 10800 Advertising expense 43600 Total operating expenses 339400 Operating income 650

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