Question

2-45 Comprehensive problem on unit costs, product costs. Atlanta Office Equipment manufactures and sells metal shelving. It began operations on January 1, 2017. Costs incurred for 2017 are as follows (V stands for variable; F stands for fixed): Direct materials used Direct manufacturing labor costs Plant energy costs Indirect manufacturing labor costs Indirect manufacturing labor costs Other indirect manufacturing costs Other indirect manufacturing costs Marketing, distribution, and customer-service costs Marketing, distribution, and customer-service costs Administrative costs $140,000 V 22,000 V 5,000 V 18,000 V 14,000 F 8,000 V 26,000 F 120,000 V 43,000 F 54,000 F Variable manufacturing costs are variable with respect to units produced. Variable marketing, distribution, and customer-service costs are variable with respect to units sold. Inventory data are as follows: Direct materials Work in process Finished goods Beginning: January 1, 2017 O lb O units O units Ending: December 31, 2017 2,300 lbs 0 units ? units Production in 2017 was 100,000 units. Two pounds of direct materials are used to make one unit of finished product. D .......... .. an h ....... - Ho Qua Ti.. . 11:. . ...... .. ......... ... 3 1. . ..... . . .. .... .. ..

Answer 1

1. If two pounds of direct materials are used to make each unit of finished product. Then 100,000 units ×2lbs =200,000 lbs were used at $0.70 per pound of direct materials ($140,000/200,000). (The direct material cost of $140,000 are direct materials used, not produced). Therefore ending inventory of direct materials is

2,300lbs @$0.70 =$1,610.

2. Calculation of finished-goods inventory on December 31,2017.

Manufacturing costs for 100,000 units

Particulars	Variable	Fixed	Total
Direct materials cost	$140,000	-	$140,000
Direct manufacturing labour costs	$22,000	-	$22,000
Plant energy costs	$5,000	-	$5,000
Indirect manufacturing labour costs	$18,000	$14,000	$32,000
Other indirect manufacturing costs	$8,000	$26,000	$34,000
Cost of goods manufactured	$193,000	$40,000	$233,000

Average unit manufacturing cost= $233,000/100,000

=$2.33 per unit

Finished goods in inventory = $20,970 (given)

$2.33 per unit

= $20,970/2.32

=9,000 units

3. Calculation of selling price

units sold in 2017 = beginning inventory+ Purchases- closing inventory

= 0+100,000-9,000

=91,000 units

Selling price =$473,200/91,000 =$5.20 per unit

4. Income statement

Revenue		$473,200
Cost of units sold:
Beginning finished goods	$0
Cost of goods manufactured	$233,000
Ending finished goods	($20,970)
Cost of goods sold		($212,030)
Gross margin		$261,170
Less:Operating costs
Marketing, distribution and customer service		$163,000
Administrative costs		$54,000
Net operating income		$44,170

____×____

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