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 $640,000 (ignore income taxes). Their plans indicate that each unit of the new product requires the following: Direct Material 4 lb. of a material costing $8 per Ib. Direct labor 2 hrs. of a metal former's time at $17.60 per hr. 0.6 hr. of an assembler's time at $12.80 per hr. Major items of production overhead would be annual rent of $74,336 for a factory building, $45,856 rent for machinery, and $34,720 of indirect material. Other production overhead is estimated to be $373,248. 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.

Answer 1

Answer with working notes is given below

Estimated Total manufacturing cost For the year ended December 31, 2016 Direct Material Beginning material inventory Cost of material purchased $408,000 Cost of material available $408,000 Less: Ending material available $24,000 Total material used $384,000 Less: indirect material used $34,7201 Direct material used $349,280 Direct Labor $514,560|(2*$17.60)+(0.60*$12.80)*12,000 Manufacturing Overhead Indirect material $34,720 Building rent $74,336 Machinery rent $45,856 Other factory overhead $373,248 $528,160 Total manufacturing overhead $1,392,000 Answer rounded to tow decimal places Product cost per unit $116.00 (Total manufacturing cost /12,000) Working notes: Material needed for production Add: Closing inventory of material needed Total purchase $384,000 12000*4*$8 $24,000 3,000*$8 $408,000 b) Income Statement For the year ended December 31, 2016 Sales Cost of Goods sold Gross profit on sales Operating expense Selling expenses Administrative expenses Net Income $2,512,000 $1,160,000 $1,352,000 $753,600 $502,400 $96,000 c) Unit Sales price $251.20 ($2,512,000/10000) Working notes: Profit needed Long-term investment Return on above Profit needed $640,000 15% $96,000 Cost of Goods sold $1,160,000 (10,000*$116) Less sales bex Sales - COGS = Gross profit Gross profit - Selling expense - administrative expense = Net profit GP - 0.30 x -0.20x = $96,000 selling expense 30% of sales = 0.30X administration expense 20% of sales = 0.20X (x-1160000)-0.30x-0.20% = 96,000 x =1256000/0.50 Sales Selling expense administrative expense $2,512,000 $753,600 $502,400 30% of sales 20% of sales