Superior Manufacturing Company has the following cost and expense data for the year ending December 31, 2010. Raw materials, 1/1/10 - $ 30,000 Insurance, factory $ 14,000 Raw materials, 12/31/10 - $20,000 Property taxes, factory building $6,000 Raw materials purchases - $205,000 Sales (net) $1,500,000 Indirect materials - $15,000 Delivery expenses $100,000 Work in process, 1/1/10 - $80,000 Sales commissions $150,000 Work in process, 12/31/10 - $50,000 Indirect labor $90,000 Finished goods, 1/1/10 - $110,000 Factory machinery rent $40,000 Finished goods, 12/31/10 - $120,000 Factory utilities $65,000 Direct labor - $350,000 Depreciation, factory building $24,000 Factory manager’s salary - $35,000 Administrative expenses $300,000 Instructions (a) Prepare a cost of goods manufactured schedule for Superior Company for 2010. (b) Prepare an income statement for Superior Company for 2010. (c) Assume that Superior Company’s ledgers show the balances of the following current asset accounts: Cash $17,000, Accounts Receivable (net) $120,000, Prepaid Expenses $13,000, and Short-term Investments $26,000. Prepare the current assets section of the balance sheet for Superior Company as of December 31, 2010.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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