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 $720,000 (ignore income taxes). Their plans indicate that each unit of the new product requires the following: Direct Material 4 lb. of a material costing $9 per Ib. 2 hrs. of a metal former's time at $19.80 per hr. 0.6 hr. of an assembler's time at $14.40 per hr. Direct labor Major items of production overhead would be annual rent of $83,628 for a factory building, $51,588 rent for machinery, and $39,060 of indirect material. Other production overhead is estimated to be $419,904. 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.
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 $720,000 (ignore income taxes). Their plans indicate that each unit of the new product requires the following: Direct Material 4 lb. of a material costing $9 per Ib. 2 hrs. of a metal former's time at $19.80 per hr. 0.6 hr. of an assembler's time at $14.40 per hr. Direct labor Major items of production overhead would be annual rent of $83,628 for a factory building, $51,588 rent for machinery, and $39,060 of indirect material. Other production overhead is estimated to be $419,904. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I'm trying to figure out the sales
I'm also trying to figure out the cost of goods sold
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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 $720,000 (ignore income taxes).
Their plans indicate that each unit of the new product requires the following:
Direct Material 4 lb. of a material costing $9 per Ib.
Direct labor
2 hrs. of a metal former's time at $19.80 per hr.
0.6 hr. of an assembler's time at $14.40 per hr.
Major items of production overhead would be annual rent of $83,628 for a factory building, $51,588
rent for machinery, and $39,060 of indirect material. Other production overhead is estimated to be
$419,904. 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
tho unit nroduction coct for 016
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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
Cost of materials purchased
459,000 v
Cost of material available
459,000 v
Less: Ending materials inventory
27,000 v
Total materials used
432,000 v
Indirect materials used
Less:
39,060 v
Direct materials used
$
392,940 v
Direct labor
578,880 v
Manufacturing overhead
Indirect material
39,060 v
Building rent
83,628 v
Machinery rent
51,588 v
Other factory overhead
419,904 v
Total manufacturing overhead
594,180 v
Total manufacturing costs
$ 1,566,000 v
Round answer to two decimal places.
Product cost per unit
$4
130.5 v
b. Prepare an estimated income statement that would provide the target amou
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