The Jarvis Company Manufactures and markets two products. The following information pertains to the financial year 2014:
Question:
The Jarvis Company Manufactures and markets two products. The following information pertains to the financial year 2014:
Total fixed manufacturing overhead costs were $440,000. Fixed selling and administration costs were $140,000, with $20,000 of this amount being traceable to product A and $30,000 traceable to product B. The remainder of the fixed SGA cost is common to the two products. Jarvis uses machine hours as the basis to allocate overhead to products. Assume that the firm began 2014 with no inventories of any kind, that expected and actual production levels are the same for 2014, and that expected overhead equals actual overhead.
1. Compute the overhead rate per machine hour. Determine the inventoriable cost per unit of product A and of product B (as would be determined under GAAP in the preparation of gross margin based income statement)
Overhead rate per machine hour $ ___________ per MH
Inventoriable cost per unit of Product A _______________ Product B $_______________
2. Create a gross-margin based income statement (income statement as would be prepared under GAAP) to compute the income before taxes for 2014. What is the value of the inventory of finished goods under this approach?
3. Create a contribution-margin based income statement for 2014. What is the value of the inventory of finished goods under this approach?
4. Compare the income that you have computed in parts 2 and 3 above. If the incomes are the same (different), explain why the incomes are the same
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw