Q32PGA - Horngren'S Financial And Managerial Accounting

Question

Preparing an income statement and calculating unit cost for a merchandising company

 Clyde Conway owns Clyde’s Pets, a small retail shop selling pet supplies. On December 31, 2018, the accounting records of Clyde’s Pets showed the following: 

Merchandise Inventory on December 31, 2018 $ 10,100 

Merchandise Inventory on January 1, 2018 15,900 

Net Sales Revenue 56,000 

Utilities Expense for the shop 3,300 

Rent for the shop 4,100 

Sales Commissions 2,650 

Purchases of Merchandise Inventory 25,000 

Requirements

 1. Prepare an income statement for Clyde’s Pets for the year ended December 31, 2018. 

2. Clyde’s Pets sold 3,850 units. Determine the unit cost of the merchandise sold, rounded to the nearest cent

Step-by-Step Solution

Answer

The net operating income is $15,150 and the unit cost is $8.00

Step-by-Step Solution Step 1 Preparation of Income Statement

Clyde’s Pet
Income Statement
Year Ended December 31, 2018
	Amount ($)	Amount ($)
Revenues:
Net Sales Revenue		$56,000
Cost of goods sold:
Beginning Merchandise Inventory	$15,900
Purchase of Merchandise	$25,000
Cost of goods available for sale	$40,900
Ending merchandise inventory	-$10,100
Cost of goods sold		$30,800
Gross Profit		$20,200
Selling and administrative Expenses:
Utilities Expense	$3,300
Rent Expense	$4,100
Sales Commission Expense	$2,650
Total selling and administrative expenses		$10,050
Operating Income		$15,150

Step 2: Computation of unit cost

$\begin{array}{c}\mathbf{Unit}\mathbf{ }\mathbf{Cost}\mathbf{=}\frac{\mathrm{Cost} \mathrm{of} \mathrm{good} \mathrm{ssold}}{\mathrm{Total} \mathrm{Units} \mathrm{Sold}}\\ \mathbf{ }\mathbf{=}\frac{\$30,800}{3,850}\\ \mathbf{=}\mathbf{\$}\mathbf{8}\mathbf{.}\mathbf{00}\end{array}$