Question
Earlier in the year Jamie Forster founded InShape Systems, a company dedicated to providing a quality product to discerning consumers. She has worked hard over
Earlier in the year Jamie Forster founded InShape Systems, a company dedicated to providing a quality product to discerning consumers. She has worked hard over the past few months to get the company up and running. With the opening day of March 1st fast approaching she has engaged you to provide some analysis on what she should price her product at on opening day.
Overview of Opening Balances in Manufacturing Inventory Accounts
As of March 1st InShape Systems will carry the following manufacturing inventory:
Inventory Account | Balance |
Direct Materials | $30,000 |
Indirect Materials | $20,000 |
Work-in-Progress | $41,000 |
Finished Goods | $27,000 |
|
Overview of Operating Expenses and Budgets
During the first month of business InShape expects the following expenses; $98,000 in production wages and $9,500 in supervisory salaries, utilities expenses of $13,750, $5,000 in prepaid expenses and $11,200 in depreciation expense on property, plant and equipment. Finally, selling, general and administrative expenses, totaling $60,000 are estimated for the month of March.
Jamie expects that the business will purchase an additional $135,000 in direct materials in March, and that as production ramps up, $129,000 in direct materials and $12,000 in indirect materials, will be used up in March.
During March, it is expected that a total of $297,750 in product will be completed, and that $125,000 in goods will be sold (this figure is before any profit margin is added on to total cost).
After discussing strategy and finance at length with your consulting team, Jamie has decided on a budget of $1.20 million in direct labour costs, and $750,000 in total manufacturing overhead for her first year of business.
Jamie would like your advice and analysis on the following:
- Develop a full-costing of the first month in sales using t-accounts, and the cost-accounting methods we reviewed in class.
- Develop a statement of cost of goods manufactured.
- Given the information above, what will be InShapes cost of goods manufactured and sold for the month of March?
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