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Ballentine Manufacturing produces and sells lawnmowers through a national dealership network. They purchase raw materials from a variety of suppliers, and all manufacturing and assembly work is performed at their plant outside of Kansas City, Missouri. They recorded these costs for the year ending December 31, 2017. Construct an income statement for Ballentine Manufacturing to reflect their net income for 2017.
Listed as follows are various costs found in businesses. Classify each cost as a fixed or variable cost, and as a product and/or period cost. A. Wages of administrative staff B. Shipping costs on merchandise sold C. Wages of workers assembling computers D. Cost of lease on factory equipment E. Insurance on factory F. Direct materials used in production of lamps G. Supervisor salary, factory H. Advertising costs I. Property taxes, factory J. Health insurance cost for company executives K. Rent on factory
Wachowski Company reported these cost data for the year 2017. Use the data to complete the following table. Total prime costs Total manufacturing overhead costs Total conversion costs Total product costs Total period costs
Paper For Above instruction
Constructing an income statement for Ballentine Manufacturing requires a thorough understanding of cost classification and proper account grouping to accurately reflect the company's financial performance for 2017. This process involves identifying and aggregating both the revenues and expenses associated with the production and sale of lawnmowers, aligning with generally accepted accounting principles (GAAP).
Income Statement for Ballentine Manufacturing, Year Ended December 31, 2017
Sales Revenue: (Assumed or provided sales figures)
Cost of Goods Sold (COGS):
- Beginning Inventory
- Plus: Purchases of Raw Materials
- Minus: Ending Inventory
Equal: Raw Materials Used in Production
Plus: Direct Labor (Assembly Wages)
Plus: Manufacturing Overhead (Factory-Related Costs)
Equals: Total Manufacturing Costs
Plus: Work-in-Progress Inventories (if any)
Less: Finished Goods Inventory, Beginning
Less: Finished Goods Inventory, Ending
Equals: Cost of Goods Sold
Gross Profit: Sales Revenue – COGS
Operating Expenses:
- Selling expenses (e.g., advertising, shipping)
- Administrative expenses (e.g., administrative wages, insurance for admin staff)
Sum of operating expenses
Net Income: Gross Profit – Operating Expenses
Classification of Costs as Fixed or Variable, and Product or Period
| Cost Item | Fixed or Variable | Product or Period Cost |
|---|---|---|
| Wages of administrative staff | Fixed | Period |
| Shipping costs on merchandise sold | Variable | Period |
| Wages of workers assembling computers | Variable | Product |
| Cost of lease on factory equipment | Fixed | Product |
| Insurance on factory | Fixed | Product |
| Direct materials used in production of lamps | Variable | Product |
| Supervisor salary, factory | Fixed | Product |
| Advertising costs | Fixed | Period |
| Property taxes, factory | Fixed | Product |
| Health insurance cost for company executives | Fixed | Period |
| Rent on factory | Fixed | Product |
Analysis of Wachowski Company's Cost Data for 2017
Using the provided cost data, we can calculate the total prime costs, total manufacturing overhead costs, total conversion costs, total product costs, and total period costs.
- Total Prime Costs: Sum of direct materials and direct labor costs.
- Total Manufacturing Overhead Costs: All factory-related indirect costs such as factory rent, supervisor salary, property taxes, and factory insurance.
- Total Conversion Costs: Sum of direct labor and manufacturing overhead.
- Total Product Costs: Sum of prime costs and manufacturing overhead.
- Total Period Costs: Costs not directly tied to production, such as selling and administrative expenses.
Accurate categorization and calculation of these costs enable the company to determine profitability, manage costs effectively, and make strategic pricing and production decisions.
Conclusion
Effective cost classification and detailed income statement preparation provide vital insights into a manufacturing company's financial health. For Ballentine Manufacturing, proper segregation of costs into fixed and variable as well as product and period costs ensures compliance with accounting standards and assists in strategic planning. Similarly, analytical tools like total prime costs, overhead, and conversion costs, as observed from Wachowski's data, support managerial decision-making and cost control measures.
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