Chapter 22, Problem 7QC

Use the following information to answer questions 4 through 7.

Suppose Iron City manufactures cast iron skillets. One model is a 10-inch skillet that sells for $20. Iron City projects sales of 500 10-inch skillets per month. The production costs are $9 per skillet for direct materials, $1 per skillet for direct labor, and $2 per skillet for manufacturing overhead. Iron City has 50 10-inch skillets in inventory at the beginning of July but wants to have an ending inventory equal to 20% of the next month’s sales. Selling and administrative expenses for this product line are $1,500 per month.

Compute the budgeted gross profit for July.

1. a. $6,000
2. b. $5,000
3. c. $4,000
4. d. $3,000