Basic Concepts_answers.pdf - Question 1 1. If 2 pounds of...

Basic Concepts – Answers to Home Exercise 1
Question 1
1. If 2 pounds of direct materials are used to make each unit of finished product,
100,000 units × 2 lbs., or 200,000 lbs. were used at $0.70 per pound of direct
materials ($140,000 ÷ 200,000 lbs.). (The direct material costs of $140,000 are direct
materials used, not purchased.) Therefore, the ending inventory of direct materials is
2,000 lbs.  $0.70 = $1,400.
2. Manufacturing Costs for 100,000 units
Variable Fixed Total
Direct materials costs $140,000 $ – $140,000
Direct manufacturing labor costs 30,000 – 30,000
Plant energy costs 5,000 – 5,000
Indirect manufacturing labor costs 10,000 16,000 26,000
Other indirect manufacturing costs 8,000 24,000 32,000
Cost of goods manufactured $193,000 $40,000 $233,000
Average unit manufacturing cost: $233,000 ÷ 100,000 units
= $2.33 per unit
Finished goods inventory in units:
=
$20 , 970 ( given )
$2 . 33 per unit
= 9,000 units
3. Units sold in 2014 = Beginning inventory + Production – Ending inventory
= 0 + 100,000 – 9,000 = 91,000 units
Selling price per unit in 2014 = $436,800 ÷ 91,000
= $4.80 per unit
4.
Revenues (91,000 units sold × $4.80) $436,800
Cost of units sold:
Beginning finished goods, Jan. 1, 2014 $ 0
Cost of goods manufactured 233,000
Cost of goods available for sale 233,000
Ending finished goods, Dec. 31, 2014 20,970 212,030
Gross margin 224,770
Operating costs:
Marketing, distribution, and customer-service costs