Q24E - Horngren'S Financial And Managerial Accounting

Question

Question: Calculating income and cost per unit for a merchandising company 

Conway Brush Company sells standard hair brushes. The following information summarizes Conway’s operating activities for 2018: 

Selling and Administrative Expenses $ 47,058 

Purchases 85,800 

Net Sales Revenue 151,800 

Merchandise Inventory, January 1, 2018 7,920 

Merchandise Inventory, December 31, 2018 11,748 

Requirements 

1. Calculate the operating income for 2018. 

2. Conway sold 6,600 brushes in 2018. Compute the unit cost for one brush.

Step-by-Step Solution

Answer

The net operating income of Conway Brush Company is $22,770 and the unit cost for one brush is $12.42

Step-by-Step Solution Step 1: Calculation of operating income

Income Statement
	Amount ($)	Amount ($)
Net Sales Revenue		$151,800
Less: COGS
Merchandise Inventory, Jan 1, 2018	$7,920
Purchases	$85,800
Less: Merchandise Inventory, Dec 31, 2018	-$11,748	$81,972
Gross Profit		$69,828
Selling and administrative expenses		$47,058
Net Operating Income		$22,770

Step 2: Computation of unit cost of one brush

$$\begin{gathered} \mathbf{Unitcostforonebrush}\mathbf{=}\frac{\mathbf{Costofgoodssold}}{\mathbf{Numberofunitssold}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{81}\mathbf{,}\mathbf{972}}{\mathbf{6}\mathbf{,}\mathbf{600}} \\ \mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{.}\mathbf{42} \end{gathered}$$