Solution:
1) If 2 pounds of direct materials are used to make one unit of finished product, then 115,000 units × 2 lbs, or 230,000 lbs were used at $0.65 per lb of direct materials i.e. ($149,500 ÷ 230,000 lbs.).
The Formula for calculating Ending Direct Material Cost = [Ending Direct Material Inventory * Cost per lb]
Therefore, Ending Direct Materials cost is 1,900 lbs. * $0.65 = $1,235.
2) Manufacturing Costs for 115,000 units
Variable Fixed Total
Direct materials costs – $149,500 + Direct manufacturing labor costs – 31,500 + Plant energy costs – 3,000 + Indirect manufacturing labor costs
(Variable + Fixed) i.e. 15,000+12,000 - 27,000 + Other indirect manufacturing costs
(Variable + Fixed) i.e. 10,000+32,000 - 42,000
So, Cost of goods manufactured - $253,000
Average unit manufacturing cost = $253,000 ÷ 115,000 units
= $2.20 per unit
Finished Goods Inventory at Dec. 31, 2014 = $15,400
Therefore Finished goods inventory total units = $15400 / $2.20
= 7,000 units
3) Units sold in 2014 = Beginning inventory + Production – Ending inventory
= 0 + 115,000 –7,000
= 108,000 units
Therefore, Selling price in 2014 = Total Revenues / Units Sold
= $583,200 ÷ 108,000
= $5.40 per unit
4) Operating Income for 2014
Revenues(108,000 units sold × $5.40) = $583,200
Cost of units sold:
Beginning finished goods, Jan. 1, 2014 = $0
Cost of goods manufactured = $253,000
Cost of goods available for sale = $253,000
Ending finished goods, Dec. 31, 2014 = $15,400
So, Cost of Units sold ($253000 - $15400) = $237,600
Therefore, Gross margin = Total Revenue - Cost of Units Sold
= $583,200 - $237,600
= $345,600
Operating costs: Marketing, distribution, and customer-service costs
Variable + Fixed i.e. ($126,000 + $48,000) = $174,000
Administrative costs = $57000
Total Operating Costs = $231,000
Therefore Operating income for 2014 = $345600 - $231,000
= $114600
