Grip 6, is an emerging company that manufactures and sells belts. Gary is the only employee of Grip 6 and his sole role is to make the belts. The belts include two parts: the belt buckle, and the belt strap. To make a belt, the buckle is machined from metal, and then the belt strap is cut to length out of webbing. A completed belt is packaged in a single-belt box (i.e. the Packaging Boxes are part of the manufacturing costs).

The belts are made in a warehouse that includes the necessary equipment to machine the belt buckles and cut the belt strap for $15,500 per year. That rent includes the utilities and use of the equipment. The warehouse will also store any materials for no additional charge.

Gary did one production run in 2015. The Ending Balance of inventory at the end of the run was as follows:

Item	Ending Amount	Ending Balance ($)
Metal	200 oz.	$50
Webbing	400 ft	$800
Packaging Boxes	500	$250
Belts in Process	150	$2,250
Finished Belts (in boxes)	50	$1,250

In 2016, Gary worked diligently to produce 3,050 additional belts and sold 2,500 belts. The revenue from the sales was $87,500. During 2016, Grip 6 incurred the following expenses:

Item	Expense ($)
Wages to Gary for Production	$45,000
Rent for the Warehouse	$15,500
Metal	$7,775
Webbing	$12,200
Packaging Boxes	$1,375
Other General and Administrative Expenses	$2500
Delivery Expenses (Shipping)	$1000
Advertising Expenses	$1000

The ending balance at the end of 2016 was as follows:

Item	Ending Amount	Ending Balance ($)
Metal	800 oz.	$200
Webbing	400 ft	$800
Packaging	200	$100
Belts in Process	150	$3,750
Finished Belts (in boxes)	600	$15,678

Please answer the following questions ignoring taxes and assuming that Grip 6 uses Full Absorption costing unless specified otherwise:

1. What is the total Cost of Goods Manufactured in 2016?

2. What is the total Cost of Goods Sold in 2016?

3. What is the Net Income for Grip6 in 2016? (Note: ignore taxes)

4. At the end of the year, Grip 6 realized that they had used more of the webbing than they had initially estimated. It turned out that the ending balance of the webbing was only $600 ($200 less than they had estimated). Assuming all else equal, how would this discovered error in the ending balance of webbing change the Cost of Goods Sold?

a: Increase COGS

b: Decrease COGS

c: Have no affect.

d: I have no idea.

5. Gary is considering hiring a production manager while he, Gary, becomes a residual claimant and does not draw a salary. The production manager has agreed to take on the job for a fixed salary of $45,000 a year plus a bonus if the cost of goods manufactured per unit decreases by $1.00 compared with the cost of goods manufactured per unit in 2016. Assuming the cost per oz of metal, the cost per foot of webbing, the cost per box, and the rent remain the same, will the new production manager earn a bonus if she produces 3,050 belts?

Yes

No

6. Gary is considering hiring a production manager while he, Gary, becomes a residual claimant and does not draw a salary. The production manager has agreed to take on the job for a fixed salary of $45,000 a year plus a bonus if cost of goods manufactured per unit decreases by $1.00 compared with the cost of goods manufactured per unit in 2016. Assuming the cost per oz of metal, the cost per foot of webbing, the cost per box, and the rent remain the same, will the new production manager earn a bonus if she produces 3,250 belts?

Yes

No

7. The production manager has agreed to take on the job for a fixed salary of $45,000 a year plus a bonus if the variable cost of goods manufactured per unit decreases by $1.00 compared with the cost of goods manufactured per unit in 2016. Assuming the cost per oz of metal, the cost per foot of webbing, the cost per box, and the rent remain the same, will the new production manager earn a bonus if she produces 3,050 belts?

Yes

No

8. The production manager has agreed to take on the job for a fixed salary of $45,000 a year plus a bonus if the variable cost of goods manufactured per unit decreases by $1.00 compared with the cost of goods manufactured per unit in 2016. Assuming the cost per oz of metal, the cost per foot of webbing, the cost per box, and the rent remain the same, will the new production manager earn a bonus if she produces 3,250 belts?

Yes

No

9. What would happen to the COGM if Gary were to strike a deal with the landlord to reduce the cost of the warehouse rent by $2000. (Note: assume all other costs and production levels are unchanged)

a: Total COGM would increase by $2000.

b: Total COGM would decrease by $2000.

c: Total COGM would increase by $1639 (which is $2000 * 2,500 sold / 3,050 produced)

d: Total COGM would decrease by $1639 (which is $2000 * 2,500 sold / 3,050 produced)