Chapter 3 Problem 3

5. Manufacturing statements and cost behavior

Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.

Per Unit Variable Cost Fixed Cost

Direct materials $4.50 $ %u2014

Direct labor 6.5 %u2014

Factory overhead 9 50,000

Selling %u2014 70,000

Administrative %u2014 135,000

Production and sales totaled 20,000 rolls and 17,000 rolls, respectively There is no work in process. Tampa carries its finished goods inventory at the average unit cost of production.

Instructions:

a. Determine the cost of the finished goods inventory of light-gauge aluminum.

b. Prepare an income statement for the current year ended December 31

c. On the basis of the information presented:

1. Does it appear that the company pays commissions to its sales staff? Explain.

2. What is the likely effect on the $4.50 unit cost of direct materials if next year's production increases? Why?