Total Manufacturing Cost, Income Statement, Unit Cost, andSelling Price Two inventors, recently

organized as Innovation, Inc., consult you regarding a plannednew product. They have estimates of the

costs of materials, labor, overhead, and other expenses for 2016but need to know how much to charge for

each unit to earn a profit in 2016 equal to 15% of theirestimated total long-term investment of $400,000

(ignore income taxes). Their plans indicate that each unit ofthe new product requires the following:

Direct material

4 lb. of a material costing $5/lb.

Direct labor

2 hrs. of a metal former’s time at $11/hr.

0.6 hr. of an assembler’s time at $8/hr.

Major items of production overhead would be annual rent of$46,460 for a factory building, $28,660

rent for machinery, and $21,700 of indirect material. Otherproduction overhead is estimated to be

$233,280. Selling expenses are an estimated 30% of total sales,and non-factory administrative expenses

are 20% of total sales.

The consensus at Innovation is that during 2016 10,000 units ofproduct should be produced for

selling and another 2,000 units should be produced for the nextyear’s beginning inventory. Also, an

extra 3,000 pounds of material will be purchased as beginninginventory for the next year. Because

of the nature of the manufacturing process, all units startedmust be completed, so work in process

inventories are negligible.


a. Incorporate the above data into a schedule of estimated totalmanufacturing costs and compute

the unit production cost for 2016.

b. Prepare an estimated income statement that would provide thetarget amount of profit for 2016.

c. What unit sales price should Innovation charge for the newproduct?

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Collen Von
Collen VonLv2
28 Sep 2019

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