James Alvarez, an engineer, needs some accounting advice. In their spare time during the past year, Alvarez and his college-aged son, Robert, have manufactured a small weed-trimming sickle in a rented building near their home. Robert, who has had one accounting course in college, keeps the books. Alvarez is pleased about the results of their first year's operations. He asks you to look over the following income report prepared by Robert before they leave on a well-deserved vacation to Hawaii, after which they plan to expand their business significantly.

After you examine the income report, Alvarez responds to your questions and assures you that (1) no theft or spoilage of materials has occurred, (2) no partially completed units are involved, and (3) he and son Robert have averaged 30 hours each per week in the business for 50 weeks (ignore income taxes). Required

a. Identify any apparent discrepancy in the income report in the cost of materials used.

b. Recalculate the cost of goods manufactured, the average cost per unit produced, and the net income for the year. 

c. What factors should James consider regarding the profitability of his venture before deciding to expand it significantly?

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Sales (34,000 units at $10 each). Costs of producing 35,000 units: Materials: Precast blades at $1.50 each. Preturned handles at $1 each.. Labor costs of hired assemblers. Labor costs of hired painters Rent on building. Rent on machinery.. Utilities for production. Other production costs $ 57,000 40,000 26,600 33,000 14,900 7,100 8,000 11,900 Advertising expense. 26,200 Sales commissions.. 35,700 Delivery of products to customers 14,350 Total costs.. $274,750 Less: Ending inventory of 1,000 units at average production costs of $7.85 (or $274,750/35,000 units) 7,850 Cost of goods sold... Net income. $340,000 266,900 $ 73,100