Question

Income Statement Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 52,400 units will be produced, with the following total costs: Direct materials Direct labor Variable overhead Fixed overhead 56,000 27,000 180,000 Next year, Pietro expects to purchase $123,000 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows: Direct materials Inventory $5,000 $4,900 Work-in-Process Inventory $12,600 $14,600 Beginning Ending Next year, Pietro expects to produce 52,400 units and sell 51,700 units at a price of $14.00 each. Beginning inventory of finished goods is $41,500, and ending inventory of finished goods is expected to be $33,000. Total selling expense is projected at $23,500, and total administrative expense is projected at $121,500. Required: 1. Prepare an income statement in good form. Round the percent to four decimal places before converting to a percentage. For example, .88349 would be rounded to .8835 and entered as 88.35. Pietro Frozen Foods, Inc. Income Statement For the Coming Year Percent Less operating expenses: 2. What if the cost of goods sold percentage for the past few years was 52.24 percent? Management's reaction might be: Further analyze sales reports Grant bonuses to production personnel Trim administrative staff Investigate production cost management

Answer 1

Solution 1:

Pietro Frozen Foods, Inc.
Computation of cost of goods manufactured
Direct Material:
Direct Material, Beginning	$5,000
Add: Purchase of direct Material	$1,23,000
Total Direct material available for use	$1,28,000
Less: Direct Material, Ending	$4,900
Direct Materials used in production		$1,23,100
Direct manufacturing Labor		$56,000
Overhead (27000+180000)		$2,07,000
Total Manufacturing Costs		$3,86,100
Add: Work in Process, Beginning		$12,600
Subtotal		$3,98,700
Less: Work in Process, Ending		$14,600
Cost of goods manufactured		$3,84,100
Add: Finished goods, Beginning		$41,500
Total Cost of goods available for sale		$4,25,600
Less: Finished Goods, Ending		$33,000
Cost of goods sold		$3,92,600
Pietro Frozen Foods, Inc.
Income Statement
Sales revenue (51700*14)		$7,23,800	100.00%
Cost of goods sold		$3,92,600	54.24%
Gross Profit		$3,31,200	45.76%
Less: Operating expenses:
Selling expense	$23,500
Administrative expenses	$1,21,500	$1,45,000	20.03%
Net Income		$1,86,200	25.73%

Solution 2:

Investigate production cost management.