Louie's Music Produces Harmonicas That It Sells for $12 Each

question 136

Essay

Louie's Music produces harmonicas that it sells for $12 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of harmonicas to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Louie's Music's first month in business:
$$\begin{array} { | l | r | } \hline \text { Jnuary 2019 } & \\\hline \text { Units produced and sold: } & \\\hline \text { Sales in units } & 1,200 \\\hline \text { Production in units } &1,400\\\hline \text { Variable manufacturing cost per harmonica } & \$ 4 \\\hline \text { Sales commission cost per harmonica } & \$ 1 \\\hline \text { Total fixed manufacturing overhead } & \$ 2,800 \\\hline \text { Total fixed selling and administrative costs } &\$ 2,100\\\hline\end{array}$$ Requirements
1. Compute the product cost per harmonica produced under absorption costing.
2. Prepare an income statement for January, 2019

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Definitions:

Permanent/Temporary

Refers to accounts in accounting: permanent accounts are balance sheet accounts that carry over into the next accounting period, while temporary accounts are income statement accounts closed at the end of the accounting period.

Financial Statement

A written record that quantitatively describes the financial health of a company, including income statement, balance sheet, and cash flow statement among others.

Statement Of Cost Of Goods Manufactured

A financial report detailing the total production costs incurred by a company to produce goods over a specific period.

Ending Inventory

The final value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.