Question

Classic Cabinets has a factory that produces custom kitchen cabinets. It has multiple product lines.

Materials and labor for the cabinets are determined by each job. To simplify the assignment, we will assume the following average costs.

The materials include $1,000for the wood and other materials of $200. Both items listed are on a per job basis. It requires 20 hours of labor on average for a custom kitchen. The hourly rate is $10. The sales price will be set at a markup of 65%.

The company estimates that it will have 16,000 direct labor hours in total for the kitchen cabinets

It assumes 800units are sold on average per year. A breakdown of estimated yearly costs related to the kitchen cabinets follows:

Salaries-office & administrative$ 520,000

Salaries for factory personal$ 220,000

Office Rent $ 125,000

Factory Rent$ 20,000

Utilities and Misc office expenses(based on units sold)$ 20,000

Travel(based on units sold)$ 24,000

Insurance -office$ 12,000

Depreciation -office equipment$ 40,000

Depreciation for factory equipment$ 70,000

Advertising$ 20,000

Sales commissions(based on units sold)$ 45,000

Factory Property taxes$ 10,000

Maintenance for factory equipment$ 80,000

QUESTION:

Prepare traditional Income Statement assuming a volume of 800 units. For the cost of goods sold, please use the per unit cost you calculated. You do not have to prepare any additional schedules.. I recommend that you list out all operating expenses given above. Do not use just Selling and General/Administrative Expenses for your categories. list out all period costs. You can ignore interest and income tax expense.

Answer 1

Computation of cost of goods sold and sales

Direct material	1000*800	800000
Direct labour	20*10*800	160000
Factory overhead:
Salary for factory personnel		220000
Factory rent		20000
Depreciation for factory equipment		70000
Factory property taxes		10000
Maintenance on factory equipment		80000
Cost of goods sold		1360000
Add: gross margin @ 65%		884000
Sales		2244000

TRADITIONAL INCOME STATEMENT
Sales		2244000
Cost of goods sold		1360000
Gross Margin		884000
Selling and administrative expenses:
Selling expenses
Travel	24000
Advertising	20000
Sales commission	45000
Administrative expenses
Salaries - office and administrative	520000
Office Rent	125000
Utilities and Misc office expenses	20000
Insurance - office	12000
Depreciation - office equipment	40000	806000
Net operating income		78000

Hope this helps :)