Question

Wo 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 2019 but need to know how much to charge for each unit to earn a profit in 2019 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 $10 per lb.
Direct labor 2 hrs. of a metal former's time at $22 per hr.
0.6 hr. of an assembler's time at $16 per hr.
Major items of production overhead would be annual rent of $92,920 for a factory building, $57,320 rent for machinery, and $43,400 of indirect material. Other production overhead is estimated to be $466,560. 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.

Answer 1

Answer:

Additional material purchased must not be included in the Cost Of goods Manufactured as it includes only direct materials used in production.

Explanation:

Wo inventors

Innovation, Inc

Sales                                                                                         $ 1975,440

Direct Material

4 lb. of a material costing $10 per lb.( $40 *10,000) =            $ 400,000    

Direct labor

2 hrs. of a metal former's time at $22 per hr.($44*10,000)=  $440,000

0.6 hr. of an assembler's time at $16 per hr.($9.6*10,000)  =  $ 96,000

Rent for a factory building                                                             $92,920

Rent for machinery,                                                                        $57,320

Indirect material                                                                              $43,400

Other production overhead                                                         $466,560

Total Manufacturing Costs                                                         $  1596,200

Additional 2000 units Mfg Costs                                               $ 319,240

Total Manufacturing Costs                                                          $ 1915,440

Profit = 15 % of $ 400,000                                                          $ 60,000

Working EPS

Additional 2000 units should be produced for next year inventory

1. Unit Costs = Total Manufacturing Costs/ No. Of units= 1596,200/10,000=  $159.62

2. Additional Costs Of 2000 units = $ 159.62 * 2000=  $ 319,240

3. Total Manufacturing Costs Of 12,000 Units = $ 1596,200 + $ 319,240=

                                                                                                 $ 1915,440

Sales must be $ 1975,440 to earn a profit of $ 60,000

Each unit must be sold for  at least $ 1975,440/12000=  $ 164.62 or

$ 165 to earn a profit of $ 60,000