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Based on the included question and answer files - please help me understand how the ending inventory amounts are calculated for each year. I see ((20000*52.41) (5000*53.87) (10000*53.28)). I can see how the 20000, 5000, and 10000 quantities are calculated. I am not sure how the dollar amounts (52.41, 53.87, and 53.28) are calculated. Can you help me understand?

Based on the included question and answer files - please help me understand how the ending inventory amounts are calculated for each year. I see ((20000*52.41) (5000*53.87) (10000*53.28)). I can see how the 20000, 5000, and 10000 quantities are calculated. I am not sure how the dollar amounts (52.41, 53.87, and 53.28) are calculated. Can you help me understand?

Financial Accounting Intro Concepts Meth/Uses
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter9: Working Capital
Section: Chapter Questions
Problem 20E
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Based on the included question and answer files - please help me understand how the ending inventory amounts are calculated for each year. I see ((20000*52.41) (5000*53.87) (10000*53.28)). I can see how the 20000, 5000, and 10000 quantities are calculated. I am not sure how the dollar amounts (52.41, 53.87, and 53.28) are calculated. Can you help me understand?

Required information [The following information applies to the questions displayed below.] O'Brien Company manufactures and sells one product. The following information pertails to each of the company's first three years of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $ $ $ $ 25 15 6 2 $590,000 $150,000 During its first year of operations, O'Brien produced 92,000 units and sold 72,000 units. During its second year of operations, it produced 75,000 units and sold 90,000 units. In its third year, O'Brien produced 81,000 units and sold 76,000 units. The selling price of the company's product is $71 per unit. 3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first): a. Compute the unit product cost for Year 1, Year 2, and Year 3. b. Prepare an income statement for Year 1, Year 2, and Year 3.
Transcribed Image Text:Required information [The following information applies to the questions displayed below.] O'Brien Company manufactures and sells one product. The following information pertails to each of the company's first three years of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $ $ $ $ 25 15 6 2 $590,000 $150,000 During its first year of operations, O'Brien produced 92,000 units and sold 72,000 units. During its second year of operations, it produced 75,000 units and sold 90,000 units. In its third year, O'Brien produced 81,000 units and sold 76,000 units. The selling price of the company's product is $71 per unit. 3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first): a. Compute the unit product cost for Year 1, Year 2, and Year 3. b. Prepare an income statement for Year 1, Year 2, and Year 3.
Explanation - FIFO Method - Under the FIFO Method company uses inventory that was purchased first in the production. Later once the entire inventory of the first purchase is utilized then the after-first inventory purchase wi used in production. Solution - 1. Income Statement (Absorption Costing) - Sales Revenue Cost of Goods Sold: Beginning Balance Direct Materials Direct Labor Variable Manufacturing Overheads Fixed Manufacturing Overheads O'Brien Company Income Statement (Absorption Costing) Year 1 Less: Ending Inventory (20,000 X $52.41) (5,000 X 53.87) (10,000 X $53.28) Gross Profit Operating Expenses: Variable Selling and Administrative Expenses Fixed Selling and Administrative Expenses Operating Income 2. Unit Product Cost - Total Manufacturing Cost Number of Units Produced Cost per Unit Year 2 Year 3 $5,112,000 $6,390,000 $5,396,000 $ $1,048,200 $ 269,350 $2,300,000 $1,875,000 $2,025,000 $1,380,000 $1,125,000 $1,215,000 $ 552,000 $ 450,000 $ 486,000 $ 590,000 $ 590,000 $ 590,000 $4,822,000 $4,040,000 $4,316,000 $1,048,200 $ 269,350 $ 532,800 $3,773,800 $4,818,850 $4,052,550 $1,338,200 $1,571,150 $1,343,450 $ 144,000 $ 180,000 $ 152,000 $ 150,000 $ 150,000 $150,000 $1,044,200 $1,241,150 $1,041,450 O'Brien Company Unit Product Cost Year 1 $4,822,000 92,000 $ Year 2 $4,040,000 75,000 Year 3 $4,316,000 81,000 52.41 $ 53.87 $ 53.28
Transcribed Image Text:Explanation - FIFO Method - Under the FIFO Method company uses inventory that was purchased first in the production. Later once the entire inventory of the first purchase is utilized then the after-first inventory purchase wi used in production. Solution - 1. Income Statement (Absorption Costing) - Sales Revenue Cost of Goods Sold: Beginning Balance Direct Materials Direct Labor Variable Manufacturing Overheads Fixed Manufacturing Overheads O'Brien Company Income Statement (Absorption Costing) Year 1 Less: Ending Inventory (20,000 X $52.41) (5,000 X 53.87) (10,000 X $53.28) Gross Profit Operating Expenses: Variable Selling and Administrative Expenses Fixed Selling and Administrative Expenses Operating Income 2. Unit Product Cost - Total Manufacturing Cost Number of Units Produced Cost per Unit Year 2 Year 3 $5,112,000 $6,390,000 $5,396,000 $ $1,048,200 $ 269,350 $2,300,000 $1,875,000 $2,025,000 $1,380,000 $1,125,000 $1,215,000 $ 552,000 $ 450,000 $ 486,000 $ 590,000 $ 590,000 $ 590,000 $4,822,000 $4,040,000 $4,316,000 $1,048,200 $ 269,350 $ 532,800 $3,773,800 $4,818,850 $4,052,550 $1,338,200 $1,571,150 $1,343,450 $ 144,000 $ 180,000 $ 152,000 $ 150,000 $ 150,000 $150,000 $1,044,200 $1,241,150 $1,041,450 O'Brien Company Unit Product Cost Year 1 $4,822,000 92,000 $ Year 2 $4,040,000 75,000 Year 3 $4,316,000 81,000 52.41 $ 53.87 $ 53.28
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