Suggested exercise Exercise - Statement TP#1

for Management Cost of goods manufactured and

Accounting : 10904A  Income statement
(Exercise 4Sup_C.7 revised and adapted for TP1)

Happy Camper Inc. (HCI) is a recently started company founded by Lucy Smallpot on May 1 st,
20X2. HCI is specialized in the design and preparation of gourmet meals for those who love the
great outdoors. Its mission states that every camper should eat as well in his tent as he would in a
restaurant.

Every meal prepared by HCI is dehydrated and the user has only to pour in a small amount of
water to transform the meal into a 5-star camper dinner. Although the camper chef doesn’t have
much to do, this cannot be said for Lucy. Indeed, at the beginning she had to prepare the meals, go
through the complex process of dehydration, and do all that from her own kitchen!

At the end of the first year of business, on May 1st, 20X3, HCI already lacked the capacity needed
to produce all the meals demanded. Lucy therefore hired two chefs and rented a commercial space
equipped with a fully adapted kitchen for the dehydration process and an office. The kitchen
occupies 75 % of the total space.

Lucy contacted a bank in order to obtain a loan but her request was rejected due to the lack of
financial information. The bank requested an income statement and schedule of cost of goods
manufactured for the financial period ended April 30, 20X4.

Lucy is a real cordon bleu chef but not much of an accountant. Therefore, she asked you, her
lifelong friend, to help her. She collected the following information for you:

1. HCI produces two main meals: northern beef ragout and oriental pasta. The manufacturing
process is essentially the same for both products and manufacturing costs are exactly the
same.

2. Packaging cost per unit is $ 0.02 per bag. Packaging is the final step in the manufacturing
process; the meals have to be completely finished before this last step.

3. One meal requires 700 grams of ingredients at an average price of $ 3.00/kg. During the
financial period, HCI bought 44,100 kg of ingredients.

4. There were no ingredients in inventory at the beginning of the financial period because
Lucy purchases ingredients as needed (she always purchases the quantities required by
production). Nor was there any beginning work-in-process inventory. However, there were
5,000 packaging bags purchased at $ 0.02/bag were in inventory at the beginning of the
period, as well as 2,000 northern beef ragout meals and 1,500 oriental pasta meals that
were available for sale (unit manufacturing cost was $ 3.70 each).

5. During the period, HCI bought ingredients and packaging bags required to produce 37,500
northern beef ragout meals and 29,700 oriental pasta meals.

MANAGEMENT ACCOUNTING (10904A) (Ancien exercice 4C.8) Practice session 1 | 1 de 2

 Département de sciences comptables, HEC Montréal (MAJ_A2020)
 Suggested exercise Exercise - Statement TP#1
for Management Cost of goods manufactured and
Accounting : 10904A  Income statement
(Exercise 4Sup_C.7 revised and adapted for TP1)

6. The (2) chefs work 35 hours weekly at an hourly rate of $ 15.00. They are paid for 52
weeks. Since being hired, they have been preparing all the meals and Lucy is now only in
charge of the supervision and administration of HCI. She estimates that she spends 40 % of
her time on administrative tasks. The rest is utilized for supervising production. Lucy paid
herself a salary of $ 56,000 for the period.

7. All meals are sold at $ 6.00 / unit.

8. The monthly rent is $ 3,000 and the fire-insurance premium is $ 900 for the period. These
expenses are allocated based on the surface occupied. Electricity and gas cost $ 4,200 and
$ 3,300 respectively. Lucy estimates that 90 % of these costs are driven by kitchen
activities.

9. Furniture and kitchen accessories used during the period cost $ 2,500. Administrative and
selling expenses totaled $ 2,250.

10. $ 12,000 was spent for housekeeping services as it is essential for HCI that the kitchen
remains clean at all times. The cleaning personnel only clean the kitchen.

11. HCI bought a commercial refrigerator and an oven on May 1 st, 20X3 at a total cost of
$ 25,200. The useful life of each piece of equipment is ten years.

12. As of April 30,, 20X4, there were 2,500 northern beef ragout meals and 1,700 oriental
pasta meals that needed to be packaged. The total value of these meals is estimated at $
27,505.

13. As of April 30,, 20X4, there were 3,000 northern beef ragout meals available for sale.
There was no oriental pasta remaining in stock. HCI evaluates its inventories using FIFO.

14. The income tax rate is 30 %.

Required:

Prepare the schedule of the cost of goods manufactured and the income statement in proper form
for the financial period ended April 30, 20X4.

MANAGEMENT ACCOUNTING (10904A) (Ancien exercice 4C.8) Practice session 1 | 2 de 2

 Département de sciences comptables, HEC Montréal (MAJ_A2020)