Question

Ravsten Company uses a job-order costing system. On January 1, the beginning of the current year, the company's inventory balances were as follows: Raw Materials .... ....... Work in Process ..................... Finished Goods ........................ $16,000 $10,000 $30,000 The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 36,000 machine-hours and incur $153,000 in manufacturing overhead cost. The following transactions were recorded for the year: a. Raw materials were purchased on account: $200,000. b. Raw materials were requisitioned for use in production: $190,000 (80% direct and 20% indirect). c. The following costs were incurred for employee services: Direct labour ......................... Indirect labour ........................ Sales commissions ..................... Administrative salaries.................. $160,000 $ 27,000 $ 36,000 $ 80,000 d. e f & Heat, power, and water costs were incurred in the factory: $42.000. Prepaid insurance expired during the year: $10,000 (90% relates to factory operations, and 10% relates to selling and administrative activities). Advertising costs were incurred, $50,000. Depreciation was recorded for the year: $60,000 (85% relates to factory operations, and 15% relates to selling and administrative activities). Manufacturing overhead cost was applied to production. The company recorded 40,000 machine- hours for the year. Goods that cost $480,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. Sales for the year totalled $700,000 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $475,000.

Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information is available in the journal entries and T-Accounts you have prepared)

Answer 1

Ravsten Company
Income Statement
For the Year Ended December 31
Sales		$ 700,000.00
Cost of goods sold ($475,000 –$3,000)		$ 472,000.00
Gross Margin		$ 228,000.00
Selling and administrative expenses:
Sales commissions	$ 36,000.00
Administrative salaries	$ 80,000.00
Insurance (10000 x 10%)	$   1,000.00
Advertising	$ 50,000.00
Depreciation (60000 x 15%)	$   9,000.00	$ 176,000.00
Net operating income		$   52,000.00