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Difference in Financial Statements

Here is the problem
Outdoor Equipment company(OEC) and Mountain Supplies, Inc. (MSI) both sell tents. OEC purchases from a manufacturer for $97 each and then sells them for$180. It purchased 10,000 tents in 20X4. MSI produces its own tents. In 20X4 MSI produced 10,000 tents. Costs were as follows:
Direct materials puchased 580,000
Direct materials used 530,000
Direct labor 290,000
Indirect manufacturing:
Depreciation 50,000
Indirect labor 60,000
other 40,000 150,000
Total cost of production 970,000
Assume that MSI had no beginning inventory of direct materials. There was no beginning inventory of finished tents, but ending inventory consisted of 1,000 finished tents. Beginning and ending work in process inventory was negligible.
Each company sold 9,000 tents for $1,620,000 in 20X4 and incurred the following selling and adminitrative costs:
Sales salaries and commissions 100,000
Depreciation on retail store 40,000
Advertising 25,000
other 15,000
total selling and administrative cost 180,000
1) Can you please show me how to prepare the inventories section of the balance sheet for December 31 2004 for OEC and MSI including income statements?
2)How do I summarize the differences between the financial statments of OEC and MSI?
3) What purpose of a cost management system is being served by reporting the items in requirements 1 and 2?

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Solution Preview

1. Since OEC purchases the tents, its balance sheet will have only one line. Inventory 97,000, which is the cost of 1,000 tents in inventory.
MSI manufactures tents, its inventory would be raw material, work in process and finished goods. The direct material in inventory would be 50,000, since 580,000 were purchased and 530,000 were used. Work in process is negiligible. The total cost of proudction is 970,000, for 10,000 tents. For 1,000 tents the value is 97,000. The finished goods inventory would be 97,000.
WE can write as -

Merchandise Inventories, 1,000 tents @ $97 $97,000


Direct materials inventory $ 50,000
Work-in-process inventory 0
Finished goods inventory 97,000
Total inventories $147,000

2. The income statement would be made as below :

Solution Summary

The solution explains how the financial statements differ between a manufacturer and a mechandiser.