Homework answers / question archive / ALABAMA CORPORATION   …

ALABAMA CORPORATION   …

Economics

Share With

---

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:

 

1. Compute the direct materials used in production.

 

2. Compute the prime cost.

 

 

3. Compute the conversion cost.

 

4. Prepare the Schedule of Cost of Goods Manufactured

 

5. Prepare the Schedule of Cost of Goods Sold

 

6. Calculate the manufacturing cost per unit

 

7. Prepare an income statement for 2016, in good form.

 

8. 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.