a-1. | Income statement | ||||||
$ | |||||||
Sales revenue | (3700*38) | 140600 | |||||
Less: Cost of goods sold | (Note:1) | 48100 | |||||
Gross margin | 92500 | ||||||
Less: General,selling and administrative cost | 64500 | ||||||
Net income | 28000 | ||||||
Note:1 | |||||||
Product cost=Materials,labor and overhead=$ 55900 | |||||||
Cost per unit=Total product cost/Number of units produced=55900/4300=$ 13 | |||||||
Cost of goods sold=Units sold*Cost per unit=3700*13=$ 48100 | |||||||
Balance sheet | |||||||
$ | |||||||
Assets | |||||||
Cash | (140600+92000-55900-64500) | 112200 | |||||
Inventory | (Note:2) | 7800 | |||||
Total assets | 120000 | ||||||
Stockholder's equity | |||||||
Common stock | 92000 | ||||||
Retained earnings | 28000 | ||||||
Total stockholder's equity | 120000 | ||||||
Note:2 | |||||||
Inventory=Units in inventory*Cost per unit | |||||||
Units in inventory=Units produced-Units sold=4300-3700=600 units | |||||||
Inventory=600*13=$ 7800 | |||||||
a-2. | Income statement | ||||||
$ | |||||||
Sales revenue | (3700*38) | 140600 | |||||
Less: Cost of goods sold | (Note:1) | 103600 | |||||
Gross margin | 37000 | ||||||
Less: General,selling and administrative cost | 0 | ||||||
Net income | 37000 | ||||||
Note:1 | |||||||
Product cost=Materials,labor and overhead+Design ad planning cost=55900+64500=$ 120400 | |||||||
Cost per unit=Total product cost/Number of units produced=120400/4300=$ 28 | |||||||
Cost of goods sold=Units sold*Cost per unit=3700*28=$ 103600 | |||||||
Balance sheet | |||||||
$ | |||||||
Assets | |||||||
Cash | (140600+92000-55900-64500) | 112200 | |||||
Inventory | (Note:2) | 16800 | |||||
Total assets | 129000 | ||||||
Stockholder's equity | |||||||
Common stock | 92000 | ||||||
Retained earnings | 37000 | ||||||
Total stockholder's equity | 129000 | ||||||
Note:2 | |||||||
Inventory=Units in inventory*Cost per unit | |||||||
Units in inventory=Units produced-Units sold=4300-3700=600 units | |||||||
Inventory=600*28=$ 16800 | |||||||
b. | Option 2 is the most favorable financial statement since it provides more net income than option 1 | ||||||
c. | Incentive bonus=Net income*11% | ||||||
Option 1: | |||||||
Incentive bonus=28000*11%=$ 3080 | |||||||
Option 2: | |||||||
Incentive bonus=37000*11%=$ 4070 | |||||||
Option 2 gives the higher bonus | |||||||
d. | Income tax expense=Net income*30% | ||||||
Option 1: | |||||||
Income tax expense=28000*30%=$ 8400 | |||||||
Option 2: | |||||||
Income tax expense=37000*30%=$ 11100 | |||||||
Option 1 minimizes the income tax expense | |||||||
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