Question

On September 26, we set up a quasi-manufacturing facility in the classroom producing patchwork quilts. Assume you expand your operation to make mini-patchwork quilts for dolls and incur the following costs:

Cost Item	Amount
Direct Materials Used	$140,000
Direct Manufacturing Labor Costs (workers are pd hourly)	$22,000
Plant Utility Costs	$5,000
Indirect Manufacturing Labor Costs—Variable	$18,000
Indirect Manufacturing Labor Costs—Fixed	$14,000
Other Indirect Manufacturing Costs—Variable	$8,000
Other Indirect Manufacturing Costs—Fixed	$26,000
Marketing, Distribution & Customer-Service Variable Costs	$120,000
Marketing, Distribution & Customer-Service Fixed Costs	$43,000
Fixed Administrative Costs	$54,000

Inventory Data	Beginning	Ending
Direct Materials	0 feet	2300 feet
Work in Process	0 units	0 units
Finished Goods	0 units	? units

Additional Data:

Variable manufacturing costs are variable with respect to units produced.

Variable marketing, distribution & customer-service costs are variable with respect to units sold.

Production for the current year was 100,000 units

Two feet of direct materials are used to make one unit of finished product.

Revenues for the current year were $473,200.

The selling price per unit and the purchase price per foot of direct materials remained stable throughout the year.

Ending inventory of finished goods is carried at the average unit manufacturing cost.

Ending Finished Goods inventory was $20,970.

Required:

Calculate the number of units sold.

Calculate Selling Price.

Calculate Operating Income by preparing an Income Statement in good form.

Answer 1

Answer 1:

We calculate cost of production as follows:

Production for the current year was =100,000 units

Hence, cost of production per unit = $233,000 / 100,000 = $2.33

Ending Finished Goods inventory was = $20,970.

Hence, Ending Finished Goods inventory in units = $20,970/ $2.33 = 9,000 units

Number of units sold = Beginning Finished Goods inventory + Units produced - Ending Finished Goods inventory

= 0 + 100,000 - 9,000

= 91,000 units

Number of units sold = 91,000

Answer 2:

Selling Price = Revenue / Number of units sold = $473,200 / 91,000

= $5.20

Selling Price = $5.20 per unit

Answer 3:

Cost of goods sold = Beginning Finished Goods inventory + Cost of production - Ending Finished Goods inventory

= $0 + $233,000 - $20,970 = $212,030