Early in the year, John Raymond founded Raymond Engineering Co. for the purpose of manufacturing a special

Question:

Early in the year, John Raymond founded Raymond Engineering Co. for the purpose of manufacturing a special flow control valve that he had designed. Shortly after year-end, the companyâ€™s accountant was injured in a skiing accident, and no year-end financial statements were prepared. However, the accountant had correctly determined the year-end inventories at the following amounts:

Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $46,000 Work in process . . . . . . . . . . . . . . . . . . . . . . . . . .. 31,500 Finished goods (3,000 units) . . . . . . . . . . . . . . . . ... 88,500 As this was the first year of operations, there were no beginning inventories. While the accountant was in the hospital, Raymond improperly prepared the following income statement from the companyâ€™s accounting records: Raymond was very disappointed in these operating results. He stated, â€œNot only did we lose more than$50,000 this year, but look at our unit production costs. We sold 10,000 units this year at a cost of $663,600; that amounts to a cost of$66.36 per unit. I know some of our competitors are able to manufacture similar valves for about $35 per unit. I donâ€™t need an accountant to know that this business is a failure.â€ Instructions a. Prepare a schedule of the cost of finished goods manufactured for the year. (As there were no beginning inventories, your schedule will start with â€œManufacturing costs assigned to production:â€.) Show a supporting computation for the cost of direct materials used during the year. b. Compute the average cost per unit manufactured. c. Prepare a corrected income statement for the year, using the multiple-step format. If the company has earned any operating income, assume an income tax rate of 30 percent. (Omit earnings per share figures.) d. Explain whether you agree or disagree with Raymondâ€™s remarks that the business is unprofitable and that its unit cost of production ($66.36, according to Raymond) is much higher than that of competitors (around \$35). If you disagree with Raymond, explain any errors or shortcomings in his analysis.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For

Financial and Managerial Accounting the basis for business decisions

ISBN: 978-0078111044

16th edition

Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello

Question Posted: