Question

An Internet food company, “Deliciousness”, will be including “Peanut Butter Brownies” in their online catalog. The Brownies will be sold in square tins and captioned with personal greetings. Jason negotiated a selling price to Deliciousness at $10 per tin.

The product cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be a fixed annual amount of $80,000

1. What is the predetermined overhead rate per tin?

2. If 200,000 tins are sold, what is the total Gross Profit?

3. If 200,000 tins are sold, what is the total Net Income?

4. Tommy thinks sales are understated by 50,000 tins. Create an income statement based on Taylor’s sales volume of 250,000 tins. Your income statement should include a heading and amounts for sales, cost of goods sold, gross profit, operating expenses, and net income. All amounts need to have the correct captions. Make sure you properly account for any over- or under-applied manufacturing overhead.

Answer 1

1. Predetermined overhead rate per tin = Estimated annual manufacturing overhead / Estimated number of tins to be sold

= $100,000 / 200,000 tins

= $0.5 per tin

2.

3.

4.