Question

1. During its first year of operations, Nickelback Company paid $10,000 for direct material, $10,000 in wages for production workers, and $30,000 wages for administrative and sales personnel. Lease payments and utilities on the administrative building and production facilities amounted to $5,000 and $6,000, respectively. General, selling, and administrative expenses were $8,000. The company owns a delivery car and manufacturing equipment. The annual depreciation on the car is $ 1,000. The original cost of the equipment is $14,000 and has a salvage value of $2,000 after 3 years. The company produced 3,000 units and sold 1,000 units at a price of $15 a unit.

1. Indicate the average cost to produce one unit
2. Indicate the cost of goods sold

Answer 1

• All working forms part of the answer
• Requirement 1 Average Cost to produce 1 unit.

Average Cost would include Direct Material, Direct Labor and Manufacturing Overhead only.

	Direct Material	$10,000
	Direct Labor [Wages]	$10,000
	Lease Payment for Production facilities	$6,000
	Depreciation on Equipment [ (14000 - 2000)/3]	$4,000
A	Total Product Cost	$30,000
B	Total Units Produced	3000
C = A/B	Average Cost to produce one unit	$10 = Answer

• Requirement 2 Cost of Goods Sold

A	Units Sold	1000
B	Average Cost to produce one unit	$10
C = A x B	Cost of Goods Sold	$10,000