Question

Jasper Company provided the following information for last year:

Sales in units 280,000
Selling price $ 12
Direct materials 180,000
Direct labor 505,000
Manufacturing overhead 110,000
Selling expense 437,000
Administrative expense 854,000
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. (Note: 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

Answer:                        

Explanation:

1.                                     Jasper Company

                                      Income Statement

                                                                                         

            Sales (280000 x $12)                                  $3360000

            Less: Cost of goods sold

            Add: Direct Material                   $180000

            Add: Direct Labor                       $505000

            Add: Manufacturing Overhead  $110000

            Cost of goods sold                                      ($795000)

            Gross Profit                                                  $ 2565000

           Less: Expenses

           Selling expense                           $437000

           Administrative expense              $854000

          Total expenses                                               ($1291000)

          Net income                                                     $1274000

Percentage of sales for each line item

Sales = 100%

Cost of goods sold: $\frac{795000}{3360000}$ x 100= 23.7%

Selling expense : $\frac{437000}{3360000}$ x 100 = 13%

Administrative expense: $\frac{854000}{3360000}$ x 100 = 25.4 %

2. According to the income statement in requirement 1, the manager can control cost by outsourcing the product if it is cheaper to get it from a third party in order to cut/control cost of goods sold.

Manager can also try controlling the administrative expenses as they are taking a bigger proportion than any other cost/ expense.