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ALABAMA CORPORATION …
ALABAMA CORPORATION
…. manufactures a single product, cleverly named Product X. The following information is available for the calendar year 2016 just completed, during which they produced and sold 200,000 units. Sales for the year was $2,400,000. During the year, the company paid a sales commission of 5 percent of sales. The corporate income tax rate was 40%. Also assume that the per-unit manufacturing cost in 2016 was the same as in the previous year, 2015.
|
Raw materials purchases |
$300,000 |
|
|
Direct labor |
140,000 |
|
|
Depreciation - factory equipment |
45,000 |
|
|
Depreciation - factory building |
30,000 |
|
|
Depreciation - headquarters building |
50,000 |
|
|
Factory insurance |
15,000 |
|
|
Property taxes: |
||
|
Factory |
20,000 |
|
|
Headquarters |
18,000 |
|
|
Utilities - factory |
34,000 |
|
|
Utilities - sales/other |
1,800 |
|
|
Administrative salaries |
150,000 |
|
|
Indirect labor salaries |
156,000 |
|
|
Sales office salaries |
90,000 |
|
|
Inventory Information |
1/1/2016 |
12/31/2016 |
|
Raw materials |
$124,000 |
$152,000 |
|
Work in process |
124,000 |
130,000 |
|
Finished Goods |
109,000 |
119,000 |
REQUIRED:
- Compute the direct materials used in production.
- Compute the prime cost.
- Compute the conversion cost.
- Prepare the Schedule of Cost of Goods Manufactured
- Prepare the Schedule of Cost of Goods Sold
- Calculate the manufacturing cost per unit
- Prepare an income statement for 2016, in good form.
- As part of the annual audit you notice that “Indirect labor salaries” included the $20,000 salary paid to Ken, who actually works in the advertising department of the company. Does this seem reasonable? What incentive would management have to include the advertising costs as “indirect labor”? (That is, what would their motivation be to do this?) Could this have any impact on the operating income? Explain.
Expert Solution
PFA
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