Question

What is the 2019 Cost of Goods Manufactured for Spinach Oreos

Oreo Inc. is a cookie manufacturer making delicious chocolate cookies. Early in 2019, in an effort to produce healthier products, the company began production of a special edition spinach flavored Oreo cookie. In January, $1,000,000 was spent on developing marketing and advertising materials. For the first six months of 2019, the company spent an additional $900,000 promoting the special spinach Oreo cookie. The product was ready for manufacture on January 21, 2019. Oreo Inc. uses a job order cost system to accumulate costs for the spinach Oreo cookie. Direct materials unit costs for the Oreo are as follows: Chocolate $5.00 Sugar 3.00 Spinach 0.30 The actual production process for the spinach Oreo is fairly straightforward. First, the chocolate, cream, and spinach are brought to a mixing and baking machine. The machine mixes the ingredients, forms and bakes round cookies. The machine requires one hour per 200 cookies. After the Oreo is mixed, baked, and formed into cookies, it is brought to assembly, where assembly personnel put two cookies together with spinach mixture in the middle and pack the Oreos for shipping. The direct labor cost to put the two cookies together with the spinach mixture for this work is $0.45 per unit. The completed packages are then sold to retail outlets through a sales force. The sales force is compensated by a 30% commission on the wholesale price for all sales. Total completed production was 750,000 units during the year. Other information is as follows: Number of spinach Oreo units sold in 2019 Wholesale price per unit 730,000 $25 Factory overhead cost is applied to jobs at the rate of $1,250 per machine hour. There were an additional 15,000 mixed and baked Oreos waiting to be assembled on December 31, 2019. In your computations, if required, round interim per unit costs to two decimal places.

What is the 2019 Cost of Goods Sold for Spinach Oreos

What is the Income from Operations for the Spinach Oreo division

Based on the Income from Operations, was Spinach Oreos a good idea (yes or no)

Answer 1

ANSWER:

(1) Cost of Goods Manufactured = Direct Materials + Direct labor cost + Manufacturing overhead+Beginning WIP Inventory - Ending WIP Inventory

Direct Materials = (5*7,50,000)+ (3*7,50,000) + (0.30* 7,50,000) = 37,50,000 + 22,50,000 + 2,25,000

= 62,25,000

Hours Machine took to produce 7,50,000 units = 7,50,000 / 200 = 3,750

Direct Labor Cost = 0.45 * 7,50,000 = 3,37,500

Factory Overhead cost = 1,250 * No. of Machine Hours = 1,250 * 3,750 = 46,87,500

Ending Inventory WIP = (15,000*5)+(3*15,000)+(0.30*15,000)

= 1,24,500

Cost of Goods Manufactured = 62,25,000 + 3,37,500 + 46,87,500 - 1,24,500

= 1,11,25,500.

(2)Cost Of Goods Sold = Cost of Goods Manufactured - Ending Inventory of Finished goods

Ending Inventory of finished goods = 20,000(7,50,000 - 7,30,000) * 25 = 5,00,000

Cost of Goods Sold = 1,11,25,500 - 5,00,000 = 1,06,25,500

(3)Income From Operations = Gross Profit - Operating Expenses ( Non Manufacturing costs)

Sales - Cost of Goods Sold = Gross Profit = 1,82,50,000 - 1,06,25,500 = 76,24,500

Operating Expenses = Advertising + Promotion + Selling Expenses

= 10,00,000 + 9,00,000 + 56,25,000 = 75,25,000

Income from Operations = 76,24,500 - 75,25,000 = 99,500

(4)Was Spinach Oreos a good Idea: Yes, Spinach Oreo is a good idea since it is landing operational profits to the organisation, and these profits and before taxes henceforth is a great measure for investors to highlight the growth potential of the organizastion. Hence, it was a great idea to manufacture spinach cookies.

Comment for any doubts.