Question

Total Manufacturing Cost, Income Statement, Unit Cost, and Selling Price
Two inventors, recently organized as Innovation, Inc., consult you regarding a planned new product.They have estimates of the costs of materials, labor, overhead, and other expenses for 2016 but need to know how much to charge for each unit to earn a profit in 2016 equal to 15% of their estimated total long-term investment of $560,000 (ignore income taxes).

Their plans indicate that each unit of the new product requires the following:

Direct Material	4 lb. of a material costing $7 per lb.
Direct labor	2 hrs. of a metal former's time at $15.40 per hr.
	0.6 hr. of an assembler's time at $11.20 per hr.

Major items of production overhead would be annual rent of $65,044 for a factory building, $40,124 rent for machinery, and $30,380 of indirect material. Other production overhead is estimated to be $326,592. Selling expenses are an estimated 30% of total sales, and non-factory administrative expenses are 20% of total sales.

The consensus at Innovation is that during 2016 10,000 units of product should be produced for selling and another 2,000 units should be produced for the next year's beginning inventory. Also, an extra 3,000 pounds of material will be purchased as beginning inventory for the next year. Because of the nature of the manufacturing process, all units started must be completed, so work in process inventories are negligible.

Required
a. Incorporate the above data into a schedule of estimated total manufacturing costs and compute the unit production cost for 2016.

Do not use negative signs with any of your answers.

Estimated Total Manufacturing Cost For the Year Ended December 31,2016
Direct material:
Beginning materials inventory		Answer
AnswerCost of materials purchasedEnding materials inventoryIndirect materials usedOther factory overhead		Answer
Cost of material available		Answer
Less:	AnswerCost of materials purchasedEnding materials inventoryIndirect materials usedOther factory overhead	Answer
Total materials used		Answer
Less:	AnswerCost of materials purchasedEnding materials inventoryIndirect materials usedOther factory overhead	Answer
Direct materials used			Answer
Direct labor			Answer
Manufacturing overhead
Indirect material		Answer
Building rent		Answer
Machinery rent		Answer
AnswerCost of materials purchasedEnding materials inventoryIndirect materials usedOther factory overhead		Answer
Total manufacturing overhead			Answer
Total manufacturing costs			Answer
Round answer to two decimal places.
Product cost per unit		Answer

b. Prepare an estimated income statement that would provide the target amount of profit for 2016.

Income Statement For the Year Ended December 31,2016
AnswerCost of goods soldNet incomeAdministrative expensesSalesSelling expenses		Answer
AnswerCost of goods soldNet incomeAdministrative expensesSalesSelling expenses		Answer
Gross profit on sales		Answer
Operating expenses:
AnswerCost of goods soldIndirect materialNet incomeSalesSelling expenses	Answer
AnswerCost of goods soldNet incomeIndirect materialAdministrative expensesSales	Answer	Answer
AnswerCost of goods soldNet incomeAdministrative expensesSalesSelling expenses		Answer

c. What unit sales price should Innovation charge for the new product?

$Answer

Answer 1

. Estimated total Manufacturing cost
For the Year Ended Dec. 31, 2016
Direct Material
Beginning Materials Inventory	$0.00
Cost Of Materials Purchased {(10000+2000)X 4 + 3000}X $7	$357,000.00
Cost Of Materials Available	$357,000.00
Less: Ending Materials Inventory (3000X$7)	-$21,000.00
Total Materials Used	$336,000.00
Less:Indirect Materials Used	-$30,380.00
Direct Materials Used		$305,620.00
Direct Labor { (2 HourX $15.40X 12000}+ {(0.6 HourX $11.20X 12000)}		$450,240.00
Manufacturing Overhead:
Indirect Material	$30,380.00
Factory Building Rent	$65,044.00
Machinery Rent	$40,124.00
Other Factory Overhead	$326,592.00
Total Manufacturing Overhead:		$462,140.00
Total Manufacturing Costs		$1,218,000.00
No. of Unit Produced		$12,000.00
Cost per Unit ( 1218000/12000)		$101.50

Income Statement
For The Year Ended Dec. 31, 2016
Sales (10000*219.80)	$2,198,000.00
Less: Cost Of Goods Sold(10000*101.50)	$1,015,000.00
Gross Profit On Sales	$1,183,000.00
LessOperating Expenses:
Selling Expenses(30%*2198000)	$659,400.00
Administrative Expenses(20%*2198000)	$439,600.00
Net Income(560000*15%)	$84,000.00

Part-c: $219.80 per Unit