Question

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Practice Problem 1 Hannibal Company produced 2.000 leather saddles during 2002. These saddles sell for ach. Hannibal had 250 saddles in finished goods inventory at the beginning of the year. At the end of the year, there were 350 saddles in finished goods inventory. Hannibal's accounting records provide the following information: Purchases of raw materials Raw materials inventory, 1/1/02 Raw materials inventory, 12/31/02 Direct labor Indirect labor Rent, factory building Depreciation, factory equipment Utilities, factory Salaries, sales supervisor Commissions, salespersons General Administration Work in process, 1/1/02 Work in process, 12/1/02 Finished goods inventory, 1/1/02 Finished goods inventory, 12/31/02 $160,000 23,400 33,400 100,000 20,000 21,000 30,000 5,978 55,000 38,000 61,000 6,250 7,498 40,000 57,050 REQUIRED: 1. Compute the cost of goods manufactured for the period. 2. Compute the cost of producing one unit of product in 2002. 3. Prepare an income statement using the framework from GP2.

Answer 1

1. Cost of Goods Manufactured: $ 325,730

Hannibal Company Schedule of Cost of Goods Manufactured For the year ended 12/31/02
Raw materials used in production
Raw Materials Inventory 1/1/02	$ 23,400
Add: Purchases	160,000
Less: Raw Materials Inventory 12/31/02	(33,400)	$ 150,000
Direct Labor		100,000
Manufacturing Overhead
Indirect Labor	20,000
Rent, Factory Building	21,000
Depreciation, Factory Equipment	30,000
Utilities, Factory	5,978	76,978
Total Manufacturing Costs		326,978
Add: Work in Process: 1/1/02		6,250
Total Cost of Work in Process		333,228
Less: Work in Process: 12/31/02		(7,498)
Cost of Goods Manufactured		325,730

2. Cost of producing one unit in 2002 = $ 325,730 / 2,000 units = $ 162.87

3.

Hannibal Company Income Statement For the year ended December 31, 2002
Sales		$ 665,000
Less: Cost of Goods Sold		308,680
Gross Profit		356,320
Selling and Administrative Expenses
Salaries, Sales Supervisor	$ 55,000
Commissions, Salespersons	38,000
General Administration	61,000	154,000
Net Operating Income		202,320