Question

The following intormation is obtained rom the records or Kaiser Company: 1. On January 1, 2017 the following machines were acquired for cash: Production machines costs $ 6,000 Marketing machines costs Administrative machines costs $3,000 $1,500 firm uses the The expected useful life of all machines is five years, no salvage value, and the straight-line method. 2. On January 2, the firm purchased for cash raw materials at cost of $5,000. 3. On January 3, the following materials were issued for use: Production machines costs $ 2,000 Marketing machines costs $ 500 Administrative machines costs $250 4. On January 14, the company paid the payroll: Production machines costs $ 3,000 Marketing machines costs $2,000 Administrative machines costs $1,500 5. On January 18, the firm paid the following expenses: Production machines costs $500 Marketing machines costs $300 Administrative machines costs $200 6. Cash sales during January were $15,000. 7. A fire destroyed raw material of $100.

1.      How much is the amount of cost in its broad definition?

2.      How much is the amount of expired cost?

3.      How much is the amount of unexpired cost?

4.      How much is the amount of product cost?

5.      How much is the amount of period cost?

6.      How much is the amount of loss?

7.      How much is the Gross Profit?

8.      How much is the Net Income From Operation?

9.      How much is the Net Income Before Tax?.

Answer 1

Hi,

To answer all the questions first step is to prepare a cost sheet.

Item	Description	Amount	Amount
Sales	Cash Sale		15000
Direct Costs
Material consumed	Only production machine cost will go into product cost	-2000
Payroll	Only production machine cost will go into product cost	-3000
Expenses	Only production machine cost will go into product cost	-500
Depreciation	Production Machine Cost 6000 / 60 months (5 year useful life with no salvage value)	-100
Cost of Production			-5600
Loss by Fire			-100
Gross Profit			9300
Sales & Administrative Overheads			-4825
Material cosumed	Marketing & Administrative machine costs	-750
Payroll	Marketing & Administrative machine costs	-3500
Expenses	Marketing & Administrative machine costs	-500
Depreciation	Marketing & Administrative machine costs 4500 / 60 months (5 year useful life with no salvage value)	-75
Net Profit			4475

1. Amount of cost in broad definition will be total cash outflow of 23000 (Machinery 10500, Raw Material 5000, Payroll 6500 and Expenses 1000)

2. Amount of expired cost will be Sales minus Net Profit which is 10525 (Cost of material consumed, payroll for the period, expenses & depreciation for the period, material lost by fire during the period)

3. Amount of unexpired cost will be broad cost minus expired cost which is 12475 (Cost of unused raw material i.e. closing inventory, written down value of machinery)

4. Product cost will be cost of production from cost sheet 5600

5. Period cost will be Marketing & administrative cost cost 4825

6. Amount of Loss is 100

7. Gross Profit is 9300

8. Net Income from Operations is 4575 (Net profit + Extraordinary loss i.e. loss by fire)

9. Net Income before tax is 4475