Question - Manufacturing Cost Schedule and Income Statement
This question relates to learning material and objectives from Online Topics 1, 2 and 3.
As part of its expansion into foreign markets Mercury Australasia Ltd has recently purchased well known garden implement manufacturer ‘Winner Mowers'. Mercury believe that with the rapid growth in the Chinese middle class famous brands like the Australian ‘Winner' lawn mower will have a large market in China when marketed through Mercury's extensive Chinese distribution channels. As part of the due diligence around the purchase of ‘Winner Mowers' you have been asked to prepare an up to date Cost of Manufacturing Schedule and Income Statement. Mr Lorne Greene, the management accountant at ‘Winner', has provided you with the following data which relates to the
2016 financial year which has just completed. The firm manufactures the body and mechanics of the mowers and installs Briggs & Stratton motors to drive them.
On June 30th, 2016 the following balances were recorded for ‘Winner Mowers' inventory accounts
(with comparative 1/7/2015 Opening Balance figures):
Inventory Account: July 1, 2015 Jun 30, 2016
Work in Process (WIP) Inventory: $ Opening $ Closing
Raw Materials 215,000 320,000
Briggs & Stratton Motors 364,000 387,000
Direct Labour 124,000 136,000
Manufacturing Overhead 35,000 36,500
Raw Material Inventory 962,000 813,000
Briggs & Stratton Motors Inventory 465,000 127,000
Finished Goods Inventory 1,871,000 1,927,000
Other balances recorded in the accounts of ‘Winner Mowers' included the following:
Account: $
Sales Revenue 12,688,000
Head Office Salaries and On-Costs 1,037,000
Factory Management Salaries 275,000
Factory Wages (Direct) 2,126,000
Raw Material & Parts Purchases 1,688,000
Briggs & Stratton Motors 2,751,000
Interest & Financing Charges 545,000
Office Consumable Expenses 123,000
Miscellaneous Factory Expenses 93,000
Accounting & Audit costs 260,000
Office Heat Light & Power Costs 42,000
Factory Heat Light & Power Costs 1,624,000
Inwards Freight 365,000
Outwards Freight 863,000
Sales Department Expenses (including commissions) 1,713,000
Depreciation of Manufacturing Plant 288,000
Depreciation of Office Equipment 22,000
Other Factory Overhead & Maintenance 421,000
The company is incorporated in Australia and pays tax at the Australian corporate rate of 30%.
Because the Briggs & Stratton motors installed in the Winner lawnmowers are such a significant line item cost, the company likes to account for this cost separately from other materials in the Manufacturing Schedule