Total Manufacturing Cost, Income Statement, Unit Cost, and Selling Price Two inventors, recently organized as Innovation,...

 

 

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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 $400,000 (ignore income taxes). Their plans indicate that each unit of the new product requires the following: Direct Material 4 lb. of a material costing $5 per lb. Direct labor 2 hrs. of a metal former's time at $11 per hr. 0.6 hr. of an assembler's time at $8 per hr. Major items of production overhead would be annual rent of $46,460 for a factory building, $28,660 rent for machinery, and $21,700 of indirect material. Other production overhead is estimated to be $233.280. 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. Direct material: Estimated Total Manufacturing Cost For the Year Ended December 31, 2016 Beginning materials inventory Cost of materials purchased 255,000 Direct material: Beginning materials inventory Cost of materials purchased Cost of material available Less: Ending materials inventory Total materials used Estimated Total Manufacturing Cost For the Year Ended December 31, 2016 Less: Indirect materials used # Direct materials used Direct labor Manufacturing overhead Indirect material Building rent Machinery rent Other factory overhead Total manufacturing overhead Total manufacturing costs Product cost per unit # Round answer to two decimal places. 0 255,000 255,000 15,000 240,000 21,700 21,700 46,460 28,660 233,280 V 74.31 x $ 233,280 891,700 330,100 0 x x x b. Prepare an estimated income statement that would provide the target amount of profit for 2 Sales Income Statement For the Year Ended December 31, 2016 Cost of goods sold Gross profit on sales Operating expenses: Selling expenses + Net income + Administrative expenses + O 0 10 x x $ 0 0 0 60,000 X X x x x 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 $400,000 (ignore income taxes). Their plans indicate that each unit of the new product requires the following: Direct Material 4 lb. of a material costing $5 per lb. Direct labor 2 hrs. of a metal former's time at $11 per hr. 0.6 hr. of an assembler's time at $8 per hr. Major items of production overhead would be annual rent of $46,460 for a factory building, $28,660 rent for machinery, and $21,700 of indirect material. Other production overhead is estimated to be $233.280. 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. Direct material: Estimated Total Manufacturing Cost For the Year Ended December 31, 2016 Beginning materials inventory Cost of materials purchased 255,000 Direct material: Beginning materials inventory Cost of materials purchased Cost of material available Less: Ending materials inventory Total materials used Estimated Total Manufacturing Cost For the Year Ended December 31, 2016 Less: Indirect materials used # Direct materials used Direct labor Manufacturing overhead Indirect material Building rent Machinery rent Other factory overhead Total manufacturing overhead Total manufacturing costs Product cost per unit # Round answer to two decimal places. 0 255,000 255,000 15,000 240,000 21,700 21,700 46,460 28,660 233,280 V 74.31 x $ 233,280 891,700 330,100 0 x x x b. Prepare an estimated income statement that would provide the target amount of profit for 2 Sales Income Statement For the Year Ended December 31, 2016 Cost of goods sold Gross profit on sales Operating expenses: Selling expenses + Net income + Administrative expenses + O 0 10 x x $ 0 0 0 60,000 X X x x x

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