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Eiffel: product cost per unit; Handcappi horizontal statement model

Eiffel Manufacturing Company makes small replicas of major landmarks that it sells to souvenir shops. The company was started on January 1, 2003 when it acquired $60,000 cash from the issue of common stock. During 2003 the company purchased and used raw materials that cost $16,000 cash. It paid wages to workers who made the replicas $22,000 cash. Finally, manufacturing overhead costs, including rental fees paid for facilities and equipment, amounted to $12,000 cash. The company started and completed the production of 1,000 replicas during 2003.

Required

a. Determine the amount of expense Eiffel incurred in 2003 assuming none of the replicas were sold in 2003.
b. Record the accounting events associated with making the 1,000 replicas in a financial statements model like the one shown below. The event pertaining to the issue of common stock is recorded in the model as an example.

Assets = Equity
Com. Ret.
Events Cash + Inv. = Stk. + Ear. Rev. - Exp. = Net Inc. Cash Flow
1 60,000 + = 60,000 + - = 60,000 FA

c. Determine the cost per unit of the 1,000 replicas. Determine the sales price per unit assuming the products are sold for cost plus 40% of cost.
d. Record the sale of 800 replicas.
e. Record the payment of a $4,000 sales commission to the salesperson who sold the replicas.

Problem 2

Handcappi Manufacturing Company experienced the following accounting events during its first year of operation. Except for the depreciation adjusting entries, all transactions are cash transactions.
1. Acquired $61,000 cash from the issue of common stock.
2. Paid $6,800 for the materials that were used to make its products. All products started were completed during the period.
3. Paid salaries of $4,300 to selling and administrative employees.
4. Paid wages of $7,200 to production workers.
5. Paid $9,000 to buy furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,000 estimated salvage value and a 5-year useful life. Code the furniture purchase as Event No. 5a. Code recognition of the annual depreciation as Event No. 5b.
6. Paid $23,000 to buy manufacturing equipment. The equipment was acquired on January 1. It had a $3,000 estimated salvage value and a 4-year useful life. Code the equipment purchase as Event No. 6a. Code recognition of the annual depreciation as Event No. 6b.
7. Completed 4,000 units of product. Determine the cost per unit and the sales price per unit assuming the sales price is cost plus 60% of cost. Record the sale of 3,000 units of product. Code the recognition of revenue as Event No. 7a. Code the recognition of cost of goods sold as Event No. 7b.

Required
Show how these events would affect the balance sheet, income statement, and statement of cash flows by recording them in a horizontal financial statements model like the one shown below. The first event is recorded as an example.

Horizontal Statements Model
Assets = Equity
Event Office Manuf. Com. Ret.
No. Cash + Furn.* + Equip.* + Inv. = Stk. + Ear. Rev. - Exp. = Net Inc. Cash Flow
1 61,000 61,000 61,000 FA

Solution Preview

Response 1:

(a) Total Expense = Raw Material expense + Wages paid + Manufacturing overhead costs, including rental fees paid for facilities and equipment = 16,000 + 22,000 + 12,000 = $50,000.
(b) Since, none of the 1000 replicas are sold they would be treated as finished goods (inventory) and it would be valued as the amount incurred in manufacturing them, which is $50,000.

Now Cash = Starting cash - Expenses = 60,000 - 50,000 = $10,000
Inventory = $50,000
Common Stock = $60,000
Net Income = zero, as nothing has been sold till now.

Therefore the financial statement is as follows:
Cash + Inventory = Common Stock + Net Income
10,000 + 50,000 = 60,000 + 0
60,000 = 60,000 The Balance Sheet indeed balances!

(c) Cost price per unit = Total cost/number of units produced
= 50,000/1,000
= $50
Sale price per unit = cost + 40% of cost
= 50 + ...

Solution Summary

The solution shows all the computations needed to understand the answers to the problems. The explanations are very good.

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