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

The Glass Doctors repair chips in car windshields. The company incurred the following operating costs for the month of July 2018:

Salaries and wages \( 10,000

Windshield repair materials 4,100

Depreciation on truck 500

Depreciation on building and equipment 900

Supplies used 450

Utilities 4,550

The Glass Doctors earned \)25,000 in service revenues for the month of July by repairing 250 windshields. All costs shown are considered to be directly related to the repair service.

Requirements

1. Prepare an income statement for the month of July.

2. Compute the cost per unit of repairing one windshield, rounded to the nearest cent.

3. The manager of The Glass Doctors must keep unit operating cost below $80 per windshield in order to get his bonus. Did he meet the goal?

Short Answer

Expert verified

The net operating income is$4,500, the unit cost is $82and the manager was not able to meet the goal.

Step by step solution

01

Preparation of income statement

The Glass doctors

Income Statement

Month ended March 31, 2018

Amount ($)

Amount ($)

Revenues

Net Service Revenue

$25,000

Expenses:

Salaries and wages expense

$10,000

Materials Expense

$4,100

Depreciation expense-Truck

$500

Depreciation expense-Building and Equipment

$900

Supplies Expense

$450

Utilities Expense

$4,550

Total Expenses

$20,500

Operating Income

$4,500

02

Calculation of unit cost

UnitCost=TotalExpensesTotalwindshieldsRepaired=$20,500250=$82.00

03

Goal is met or not

The manager of the company must keep the unit operating cost less than $80, but in this case, unit operating cost is $82, which is much higher than $80. So, the manager of the company was not able to meet the goal.

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Most popular questions from this chapter

Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturerโ€™s regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.

Beckyโ€™s former employer, Shamalay Automotive, receives only about 25 cars each month. Consequently, Shamalay is not very profitable.

Becky is surprised to learn that her new employer, Mueller Imports, receives more than 200 cars each month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for โ€œmiscellaneous services.โ€ Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a โ€œselling expense.โ€ From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturerโ€™s regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma. Put yourself in Beckyโ€™s place.

Requirements

1. What is the ethical issue?

2. What are your options?

3. What are the possible consequences?

4. What should you do?

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

Clyde Conway owns Clydeโ€™s Pets, a small retail shop selling pet supplies. On December 31, 2018, the accounting records of Clydeโ€™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 Clydeโ€™s Pets for the year ended December 31, 2018.

2. Clydeโ€™s Pets sold 3,850 units. Determine the unit cost of the merchandise sold, rounded to the nearest cent

How does a service company calculate unit cost per service?

Identifying ethical standards

The Institute of Management Accountantsโ€™ Statement of Ethical Professional Practice requires managerial accountants to meet standards regarding competence, confidentiality, integrity, and credibility. Consider the following situations. Which standard(s) is(are) violated in each situation?

d. You failed to read the detailed specifications of a new accounting software package that you asked your company to purchase. After it is installed, you are surprised that it is incompatible with some of your companyโ€™s older accounting software.

How does a merchandising company calculate unit cost per item?

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