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 the year but need to know how much to charge for each unit to earn a profit during the year equal to $15\%$ of their estimated total long$-$term investment of $$600,000($ignore income taxes$).$

Their plans indicate that each unit of the new product requires the following:

Direct Material $4$ lb$.$ of a material costing $$7\mathrm{.}50$ per lb$.$

Direct labor $2$ hrs$.$ of a metal former's time at $$16\mathrm{.}50$ per hr$.$

$0\mathrm{.}6$ hr$.$ of an assembler's time at $$12$ per hr$.$

Major items of production overhead would be annual rent of $$69,690$ for a factory building, $$42,990$ rent for machinery, and $$32,550$ of indirect material. Other production overhead is estimated to be $$349,920.$ 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 the year $10,000$ units of product should be produced for selling and another $2,000$ units should be produced for the next year's beginning inventory. Also, an extra $3,000$ pounds of material 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

a$.$ Incorporate the above data into a schedule of estimated total manufacturing costs and compute the unit production cost for the year.

Do not use negative signs with any of your answers.Estimated Total Manufacturing Cost

For the Year Ended December $31,2016$

Estimated Total Manufacturing Cost

For the Year Ended December $31$

b$.$ Prepare an estimated income statement that would provide the target amount of profit for the year.

b$.$ Prepare an estimated income statement that would provide the target amount of profit for $2016.$

c$.$ What unit sales price should Innovation charge for the new product?

$Answer