Problem Set A p.60-61

P2-3A. Total Manufacturing Cost, Income Statement, Unit Cost, and Selling Price Two inventors, recently organized as Innovation, Inc., consult you regarding a planned new product. They have estimates of the costs of materials, labor, overhead, and other expenses for 2019 but need to know how much to charge for each unit to earn a profit in 2019 equal to 15% of their estimated total long-term investment of $400,000 (ignore income taxes). Their plans indicate that each unit of the new product requires the following:

Direct Materials 4lbs. of a materials costing $5/lb.

Direct labor 2 hrs. of a metal formers time at $11/hr

0.6 hr. of an assemblers 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 materials. Other production overhead is estimated to be $233, 280. Selling expense are an estimated 30% of total sales, and non-factory administrative expenses are 20% of total sales.

The Consensus at Innovation is that during 2019, 10,000 units of product should be produced for selling and another $2,000 units should be produced for the next years beginning inventory. Also, an extra 3,000 pounds of materials will be purchased as beginning inventory for the next year. Because of the nature of the manufacturing process, all units started must be completed, so work-in-process inventories are negligible.

Required

1. Incorporate the above data into a schedule of estimated total manufacturing costs and compute the unit production cost for 2019.
2. Prepare an estimated income statement that would provide the target amount of profit for 2019.
3. What unit sales price should Innovation charge for the new product?