Question

Consol Co. makes cardboard boxes. During the most recent accounting period, Consol paid $60,000 for raw materials, $48,000 for labor, and $52,000 for overheard costs. Consol completed and sold 400,000 boxes. Selling expenses amounted to $10,000, and general and administrative expenses amounted to $30,000. The company wishes to earn a gross margin equal to 40% of product cost. Hint: Since Consol Co completed and sold 400,000 boxes, Product costs would equal to the Cost of goods sold)

A. How much is product cost?

B. How much is period cost?

C. How much is gross margin?

D. What is the selling price per box?

E. How much is the operating income?

Answer 1

A. Product Cost = Cost of Goods Sold

Cost of Goods Sold = Cost of Raw material + Direct Labour + Overhead

= $ 60000 + $ 48000 + $ 52000 = $ 160000

B. Period Cost : A period cost is more closely associated with the passage of time than with a transactional event.

Total Period Cost = Selling Expenses + General and Administrative Expenses  

= $ 10000 + $ 30000 = $ 40000

C. Gross margin = Product Cost x 40% = $ 160000 x 40% = $ 64000

D. Sales = Cost of Goods Sold + Gross Profit = $ 160000 + $ 64000 = $ 224000

Number of Boxes = 400000 boxes

Selling Price Per Box = $ 224000 / 400000 boxes = $ 5.6 per box

E. CALCULATION OF OPERATING INCOME

Sales $ 224000

Less : Product Cost $ 160000

Gross Profit $ 64000

Less : Period Cost $ 40000

Operating Income $ 24000