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 lb. 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 the unit production cost for 2016. Do not use negative signs with any of your answers.
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 lb. 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 the unit production cost for 2016. Do not use negative signs with any of your answers.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 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
$4
Cost of materials purchased
Cost of material available
Less: Ending materials inventory
0 x
Total materials used
0 x
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