Question

1. Assume you have developed and tested a prototype electronic product and are about to start your new business. You purchase preprogrammed computer chips at $70 per unit. Other component costs include plastic casings at $15 per unit and assembly hardware at $5 per unit. Direct labor costs are $15 per hour and three units can be produced per hour. You intend to sell each unit at a 50 percent markup over the total costs of producing each unit. The plan is to produce 500 product units per month in January, February, and March. Sales are expected to be 200 units in January, 400 units in February, and 800 units in March.

1. Calculate the dollar amount of sales revenue expected in each month (i.e., January, February, and March) and for the first quarter of the year.
2. Prepare a cost of production schedule for January, February, and March.
3. Prepare a cost of goods sold schedule for each of the three months and for the first quarter of the year. Using your cost of goods sold estimates and the sales revenues expected in Part A, calculate the gross earnings for January, February, and March, as well as for the first quarter of the year.
4. Prepare an inventories schedule for January, February, and March.

Answer 1

A.)	Computer Chip	70
	Plastic casings	15
	Assembly hardware	5
	Direct labor cost	5
	Total cost of producing each unit	95
	Add: markup @50%	47.50
	Selling price per unit	142.50
		January	February	March	Total
	Sales in units	200	400	800	1,400
	x Selling price per unit	142.50	142.50	142.50	142.50
	Expected Sales Revenue $	28,500	57,000	114,000	199,500
B.)		January	February	March
	Production in Units	500	500	500
	x Cost of producing each unit	95	95	95
	Cost of production	47,500	47,500	47,500
C.)		January	February	March	Total
	Sales in units	200	400	800	1,400
	x Cost of producing each unit	95	95	95	95
	Cost of goods sold $	19,000	38,000	76,000	133,000
		January	February	March	Total
	Expected Sales Revenue $	28,500	57,000	114,000	199,500
	Less: Cost of goods sold	19,000	38,000	76,000	133,000
	Gross profit $	9,500	19,000	38,000	66,500
D.)		January	February	March
	Opening Stock	-	28,500	38,000
	Add: Cost of production	47,500	47,500	47,500
	Less: Cost of goods sold	19,000	38,000	76,000
	Ending Inventory $	28,500	38,000	9,500
		January	February	March
	Opening Stock	-	300	400
	Add: Units produed	500	500	500
	Less: Units sold	200	400	800
	Ending Inventory in units	300	400	100