Question:
Cost of Production Report; Three Departments; Income Statement. The income statement shown below was submitted by the accountant of the North Dakota Company to the directors of the company. After a careful study of the results, the directors were of the opinion that the loss shown was incorrect. It is necessary to prepare another income statement showing unit and departmental costs at each stage of production, with the knowledge that the raw materials put in process are used at the beginning of operations in Department A.
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THE NORTH DAKOTA COMPANY
Income Statement
For Year Ended December 31, 19
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Sales (10,000 units @ $3.50)
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$35,000
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Cost of goods sold
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Materials purchased
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$8,600
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Direct labor - Dept. A
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5,160
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Direct labor - Dept. B
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4,760
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Direct labor - Dept. C
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3,270
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Factory overhead:
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Department A
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6,450
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Department B
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4,760
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Department C
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1,635
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$34,635
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Deduct
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Raw materials inventory 12/31
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$ 560
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Work in process, 12/31 (1,000 units in
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each department - all materials, 50%
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labor and overhead; 3,000 units)
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3,750
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Finished goods, 2/3 (400 units @ $2.50)
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1,000
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5,310
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29,325
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Gross profit
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$5,675
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Commercial expenses:
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Marketing costs
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$3,000
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Administrative costs
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5000
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8,000
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Net loss
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$(2,325)
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Required: A corrected income statement and a cost of production report with quantity schedule and computation of equivalent production.