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 $600,000 (ignore income taxes).

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

Direct Material	4 lb. of a material costing $7.50 per lb.
Direct labor	2 hrs. of a metal former's time at $16.50 per hr.
	0.6 hr. of an assembler's time at $12 per hr.

Major items of production overhead would be annual rent of $69,690 for a factory building, $42,990 rent for machinery, and $32,550 of indirect material. Other production overhead is estimated to be $349,920. 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
Answer		Answer
Answer		Answer
Gross profit on sales		Answer
Operating expenses:
Answer	Answer
Answer	Answer	Answer
Answer		Answer

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

$________

Answer 1

(a)

Estimated total Manufacturing Cost For The Year ended December 31,2016
Direct Material
Opening Material	0
Cost of material purchased[ (10000 unit+2000 unit)*4 lb)*$7.5] +( 3000*$7.5)	382500
Cost of material available	3,82,500
Less; Closing Balance of inventory (3000 lb * $7.5)	22,500
Total Direct Material consumed		3,60,000
Direct Labor
Cost of labor used ( 12000 units *$2)* $16.50)	396,000
Add;-Cost of assembler (12000 units*$0.6)*$12	86,400
Total Direct Labor cost		4,82,400
Manufacturing Overhead
Indirect Material	32,550
Building Rent	69,690
Equipment Rent	42,990
Other Production Overhead	3,49,920
Total Manufacturing Overhead		4,95,150
Total Manufacturing Cost		1,3,37,550
Units Produced		12000
Per Unit Cost		111.46
Per Unit Cost (rounded Off)		111

(b) Estimated income statement that will provide target amount of profit for 2016;-

Income Statement For year Ended December 31,2016
Particular	Amount($)	Amount($)
Sales	2,40,00,000
Less:Cost of goods sold (10000 units* $111)	11,10,000
Gross Profit on sales($6,00,000*15%)		12,90,000
Operating Expenses
Administrative Expense($ 2,40,00,000* 30%)	720000
Selling Expense($ 2,40,00,000*20%)	480000
Total Operating Expense		1200000
Net Profit($6,00,000*15%)		90000

(c) Unit price that should be charged by Innovation for the new product is;-

Let Selling Price be x

X- $ 11,10,000 - 0.30 x - 0.20 x = $90000

=0.50 x = 12,00,000

= x = 2,40,00,000