Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 27

Finding Unknowns

Mary’s Mugs produces and sells various types of ceramic mugs. The business began operations on January 1, Year 1, and its costs incurred during the year include these:

Variable costs (based on mugs produced):	$ 6,000
Direct materials cost
Direct manufacturing labor costs	27,000
Indirect manufacturing costs	5,400
Administration and marketing	3,375
Fixed costs:
Administration and marketing costs	18,000
Indirect manufacturing costs	6,000

On December 31, Year 1, direct materials inventory consisted of 3,750 pounds of material. Production in that year was 20,000 mugs. All prices and unit variable costs remained constant during the year. Revenues for year 1 were $73,312. Finished goods inventory was $6,105 on December 31, Year 1. Each finished mug requires 0.4 pounds of material.

Required

Compute the following:

a. Direct materials inventory cost, December 31, Year 1.

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b. Finished goods ending inventory in units on December 31, Year 1.

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c. Selling price per unit.

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d. Operating profit for year 1.

Step 1 of 13

Income statement

Income statement is one of the financial statement prepared by the company which shows how much the company has earned by undertaking its business. The income statement shows the revenues for the year and expenses for business which company has incurred and the net figure of revenue less expenses shows the net income earned by the company. If the revenues are more than the expenses, company has net profit and if revenues are less than the expenses then the company would have net loss.