An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Attack Brownies” (CAB) in their online catalog. CAB will be sold in square tins and captioned with personal greetings. Jordan negotiated a selling price to Yumminess at $10 per tin.
The product cost is $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be a fixed annual amount of $80,000.
1. If 200,000 tins are sold, is the Gross Profit?
2. If 200,000 tins are sold, is the Net Income?
3. Taylor thinks sales are understated by 50,000 tins. Create an income statement based on Taylor’s sales volume. Your income statement should include a heading and amounts for sales, cost of goods sold, gross profit, operating expenses, and net income. All amounts need to have the correct captions. Make sure you properly account for any over- or under-applied manufacturing overhead.