I-21.02 Problem

I-21.02 Problem - I-21.02 Storm Tools has formed a new...

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I-21.02 The unit is scheduled to produce 25,000 drills during January, with an increase of 2,500 units per month for the next three months. Each drill requires $40 of raw materials. Raw materials are purchased on account, and paid in the month following the month of purchase. The plant manager has established a goal to end each month with raw materials on hand, sufficient to meet 25% of the following month's planned production. The unit expects to sell 20,000 drills in January, 25,000 in February, 25,000 in March, and 30,000 per month thereafter. The selling price is $100 per drill. 50% of the units will be sold for cash through a website, and the other units will be sold to retailers who pay 40% in the month of purchase, and 60% in the following month. Uncollectible accounts are not material. Each drill requires 20 minutes of direct labor to assemble. Labor rates are $24 per hour. Variable factory overhead is applied at $9 per direct labor hour. The fixed factory overhead is $25,000 per month; 60% of this amount is related to depreciation of plant and equipment. With the exception of depreciation, all overhead is funded as incurred.
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