Question

During its first year of operations, Natzke & Slates Mfg, Inc. paid $29,000 for direct material and $24,000 in wages for production workers. Rent and utility expense on the production facilities amounted to $17,000. General, selling, and administrative (S,G&A) costs were $13,000. The company produced 5,000 units and sold 4,000 units at a price of $42/unit. Based upon the facts presented, and after reviewing Chapter 1 regarding product vs. period costs, what is the average production cost that would be used to value company inventory on a per unit basis? A) $5.80 B) $10.60 C) $11.30 D) $13.30 E) $14.00 F) $16

Answer 1

E) $14.00

Step-by-step explanation:

cost: materials + labor + overhead

materials 29,000

labor 24,000

overhead 17,000

total 70,000

unit cost: 70,000 / 5,000 = 14 per unit.

The selling and administrative expenses are cost of the period. They are not capitalized through inventory. They are disclosure on the income statement.