Question

Instructions Jasper Company provided the following information for last year: Costs Amount Sales in units 290,000 Selling price $13 Direct materials $150,000 Direct labor $504,000 Manufacturing overhead $110,000 $437,000 Selling expense Administrative expense $860,000 Last year, beginning and ending inventories of work in process and finished goods equaled zero. Required: 1. Prepare an income statement for Jasper for last year. Calculate the percentage of sales for each line item on the income statement. Round percentages to the nearest tenth of a percent. 2. CONCEPTUAL CONNECTION: Briefly explain how a manager could use the income statement created for Requirement 1 to better control costs.

Answer 1

Solution:

Requirement 1: Income Statement

Jasper Company - Income Statement Sales & Expenses ($)Percent of Sales (%) 4 Direct Materials 150000 3.98 5 Direct Labor 504000 13.37 6 Manufacturing Overhead 110000 2.92 7 Cost of Goods Manufactured 764000 20.27 8 Add: Administrative Expenses 860,000 22.81 Cost of Goods Sold 1624000 43.08 10 Add: Selling Expenses 437000 11.59 11 Total Cost 2061000 54.67 12 Add: Operating Income (Sales-Total Cost) 1709000 45.33 13 Sales Revenue (290,000 units @$13 per unit) 3770000 100 14

Requirement 2: Conceptual Connection
The income statement with percentage of sales helps to analyse the relation between expenditure and Sales. This information will be useful to control the cost by carefully analysing the percentages.

* The income statement showing each account as a percentage of Sales helps focus managerial attention on those expenses that are relatively high.

*For Jasper, it appears as though administrative expenses is significantly larger.
To reduce this expense, management should,
✅ Minimize the size of their legal staff