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Horngren'S Financial And Managerial Accounting
Found in: Page 902

Short Answer

Preparing an income statement and calculating unit cost for a service company

The Glass Doctors repair chips in car windshields. The company incurred the following operating costs for the month of July 2018:

Salaries and wages $ 10,000

Windshield repair materials 4,100

Depreciation on truck 500

Depreciation on building and equipment 900

Supplies used 450

Utilities 4,550

The Glass Doctors earned $25,000 in service revenues for the month of July by repairing 250 windshields. All costs shown are considered to be directly related to the repair service.

Requirements

1. Prepare an income statement for the month of July.

2. Compute the cost per unit of repairing one windshield, rounded to the nearest cent.

3. The manager of The Glass Doctors must keep unit operating cost below $80 per windshield in order to get his bonus. Did he meet the goal?

The net operating income is $4,500, the unit cost is $82 and the manager was not able to meet the goal.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Preparation of income statement

The Glass doctors
Income Statement
Month ended March 31, 2018

Amount ($)

Amount ($)

Revenues

Net Service Revenue

$25,000

Expenses:

Salaries and wages expense

$10,000

Materials Expense

$4,100

Depreciation expense-Truck

$500

Depreciation expense-Building and Equipment

$900

Supplies Expense

$450

Utilities Expense

$4,550

Total Expenses

$20,500

Operating Income

$4,500

Step 2: Calculation of unit cost

Step 3: Goal is met or not

The manager of the company must keep the unit operating cost less than $80, but in this case, unit operating cost is $82, which is much higher than $80. So, the manager of the company was not able to meet the goal.

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