a-1. | Income statement | |||||
$ | ||||||
Sales revenue | (3500*35) | 122500 | ||||
Less: Cost of goods sold | (Note:1) | 42000 | ||||
Gross margin | 80500 | |||||
Less: General,selling and administrative cost | 67200 | |||||
Net income | 13300 | |||||
Note:1 | ||||||
Product cost=Materials,labor and overhead=$ 50400 | ||||||
Cost per unit=Total product cost/Number of units produced=50400/4200=$ 12 | ||||||
Cost of goods sold=Units sold*Cost per unit=3500*12=$ 42000 | ||||||
Balance sheet | ||||||
$ | ||||||
Assets | ||||||
Cash | (122500+91000-50400-67200) | 95900 | ||||
Inventory | (Note:2) | 8400 | ||||
Total assets | 104300 | |||||
Stockholder's equity | ||||||
Common stock | 91000 | |||||
Retained earnings | 13300 | |||||
Total stockholder's equity | 104300 | |||||
Note:2 | ||||||
Inventory=Units in inventory*Cost per unit | ||||||
Units in inventory=Units produced-Units sold=4200-3500=700 units | ||||||
Inventory=700*12=$ 8400 | ||||||
a-2. | Income statement | |||||
$ | ||||||
Sales revenue | (3500*35) | 122500 | ||||
Less: Cost of goods sold | (Note:1) | 98000 | ||||
Gross margin | 24500 | |||||
Less: General,selling and administrative cost | 0 | |||||
Net income | 24500 | |||||
Note:1 | ||||||
Product cost=Materials,labor and overhead+Design ad planning cost=50400+67200=$ 117600 | ||||||
Cost per unit=Total product cost/Number of units produced=117600/4200=$ 28 | ||||||
Cost of goods sold=Units sold*Cost per unit=3500*28=$ 98000 | ||||||
Balance sheet | ||||||
$ | ||||||
Assets | ||||||
Cash | (122500+91000-50400-67200) | 95900 | ||||
Inventory | (Note:2) | 19600 | ||||
Total assets | 115500 | |||||
Stockholder's equity | ||||||
Common stock | 91000 | |||||
Retained earnings | 24500 | |||||
Total stockholder's equity | 115500 | |||||
Note:2 | ||||||
Inventory=Units in inventory*Cost per unit | ||||||
Units in inventory=Units produced-Units sold=4200-3500=700 units | ||||||
Inventory=700*28=$ 19600 | ||||||
b. | Option 2 is the most favorable financial statement since it provides more net income than option 1 | |||||
c. | Incentive bonus=Net income*14% | |||||
Option 1: | ||||||
Incentive bonus=13300*14%=$ 1862 | ||||||
Option 2: | ||||||
Incentive bonus=24500*14%=$ 3430 | ||||||
Option 2 gives the higher bonus | ||||||
d. | Income tax expense=Net income*30% | |||||
Option 1: | ||||||
Income tax expense=13300*30%=$ 3990 | ||||||
Option 2: | ||||||
Income tax expense=24500*30%=$ 7350 | ||||||
Option 1 minimizes the income tax expense | ||||||
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