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Flow of Costs and Income Statement

Technology Accessories Inc. is a designer, manufacturer, and distributor of accessories for consumer electronic products. Early in $20$Y$3,$ the company began production of a leather cover for tablet computers, called the iLeather. The cover is made of stitched leather with a velvet interior and fits snugly around most tablet computers. In January, $$754,000$ was spent on developing marketing and advertising materials. For the first six months of $20$Y$3,$ the company spent an additional $$1,410,000$ promoting the iLeather. The product was ready for manufacture on January $21,20$Y$3.$

Technology Accessories Inc. uses job order costing to accumulate costs for the iLeather. Direct materials unit costs for the iLeather are as follows:

Line Item Description Amount

Leather $$10\mathrm{.}00$

Velvet $5\mathrm{.}00$

Packaging $0\mathrm{.}40$

Total $$15\mathrm{.}40$

The actual production process for the iLeather is fairly straightforward. First, leather is brought to a cutting and stitching machine. The machine cuts the leather and stitches an exterior edge into the product. The machine requires one hour per $130$ iLeathers.

After the iLeather is cut and stitched, it is brought to assembly, where assembly personnel affix the velvet interior and pack the iLeather for shipping. The direct labor cost for this work is $$0\mathrm{.}50$ per unit.

The completed packages are then sold to retail outlets through a sales force. The sales force is compensated by a $20\%$ commission on the wholesale price for all sales.

Total completed production was $550,000$ units during the year. Other information is as follows:

Line Item Description Amount

Number of iLeather units sold in $20$Y$3510,000$

Wholesale price per unit $$40$

Factory overhead cost is applied to jobs at the rate of $$1,300$ per machine hour. There were an additional $22,000$ cut and stitched iLeathers waiting to be assembled on December $31,20$Y$3.$

In your computations, if required, round interim per unit costs to two decimal places and final answers to the nearest whole dollar.

Required:

Question Content Area

$1.$ Prepare an annual income statement for the iLeather product.

Technology Accessories Inc.

Income Statement

For the Year Ended December $31,20$Y$3$

Line Item Description Amount Amount

Sales

$Sales

$20,400,000$

Cost of Goods Sold

Cost of Goods Sold

Gross Profit

$Gross Profit

Selling Expenses:

Salespersons Commissions

$Salespersons Commissions

$4,080,000$

Advertising Design

Advertising Design

$754,000$

Advertising Expenses

Advertising Expenses

$1,410,000$

Total Selling Expenses Total Selling Expenses

$6,244,000$

Operating Income

$Operating Income

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