ALABAMA CORPORATION

The company manufactures a single product, cleverly named Product X. The following information is available for the calendar year 2018 just completed, during which they produced and sold 200,000 units. Sales for the year was $2,400,000. During the year, the company paid a sales commission of 5 percent of sales. The corporate income tax rate was 20%.

Direct materials purchases		$300,000
Direct labor		140,000
Depreciation - factory equipment		45,000
Depreciation - factory building		30,000
Depreciation - headquarters building		50,000
Factory insurance		15,000
Property taxes:
Factory		20,000
Headquarters		18,000
Utilities - factory		34,000
Utilities - sales		1,800
Administrative salaries		150,000
Indirect labor salaries		156,000
Sales office salaries		90,000

Inventory Information	12/31/2017	12/31/2018
Raw materials	$124,000	$152,000
Work in process	124,000	130,000
Finished Goods	109,000	118,904

REQUIRED:

1. How many finished units of Product X do you thing were in the ending FG inventory?
2. As part of the annual audit you notice that Indirect labor salaries included the $20,000 salary paid to Ken, who actually works in the advertising department of the company. Does this seem reasonable? Why or why not?Does this make a difference in terms of the net operating income? Why or why not?What incentive would management have to include the advertising costs as indirect labor? (That is, what would their motivation be to do this?)

1. Does this seem reasonable? Why or why not?
2. Does this make a difference in terms of the net operating income? Why or why not?

What incentive would management have to include the advertising costs