Question

The ABC Corporation manufactures and sells two products: T1 and T2. 20XX budget for the company is given below:

Projected Sales Units Price T1 60,000 $165 T2 40,000 $250

Inventories in Units January 1, 20XX December 31, 20XX T1 20,000 25,000 T2 8,000 9,000

The following direct materials are used in the two products: Amount used per unit Direct Material Unit T1 T2 A pound 4 5 B pound 2 3 C each 0 1

Anticipated Inventories Direct Material Purchase Price January 1, 2012 December 31, 2012 A $12 32,000 lb. 36,000 lb. B $5 29,000 lb. 32,000 lb. C $3 6,000 units 7,000 units

Projected direct manufacturing labor requirements and rates for 20XX are as follows: Hours per Unit Rate per Hour T1 2 $12 T2 3 $16

4

Manufacturing overhead is allocated at the rate of $20 per direct manufacturing labor-hour. Marketing and distribution costs are projected to be $100,000 and $ 300,000, respectively.

a. What is the total expected revenue (in dollars) for 20XX? b. What is the expected production level (in units) both for T1 and T2? c. What is the total direct material purchases (in dollars) for each type of direct material? d. What is the total direct manufacturing labor cost (in dollars)? e. What is the total overhead cost (in dollars)? f. What is the total cost of goods sold (in dollars)? g. What is the total expected operating income (in dollars) for 20XX?

Answer 1

The ABC Corporation

a) Total Expected Revenue (in dollars) for 20XX:

Revenue from T1 = 60,000 x $165 = $26,400,000

Revenue from T2 = 40,000 x $250 = $10,000,000

Total Revenue from T1 and T2 = $36,400,000

b) Production Level (in units) for T1 and T2

T1 T2

Total Units sold 160,000 40,000

Add Closing Inventory 25,000 9,000

Units Available for sale 185,000 49,000

less opening inventory 20,000 8,000

Production Level 165,000 units 41,000 units

c) Total Direct Material Purchases (in dollars):

Cost of direct materials used T1 T2

A: (165,000 x 4 x $12) $7,920,000 $2,460,000 (41,000 x 5 x $12)

B: (165,000 x 2 x $5) 1,650,000 615,000 (41,000 x 3 x $5)

C: 0 123,000 (41,000 x 1 x$3)

Total cost $9,570,000 $3,198,000 Total = $12,768,000

Cost of direct per unit = $58 ($9,570,000/165,000) for T1 and $78 ($3,198,000/41,000) for T2

Cost of direct materials used for production $12,768,000

Cost of closing direct materials:

A (36,000 x $12) $432,000

B (32,000 x $5) 160,000

C (7,000 x $3) 21,000 $613,000

Cost of direct materials available for prodn $13,381,000

Less cost of beginning direct materials:

A (32,000 x $12) $384,000

B (29,000 x $5) 145,000

C (6,000 x $3) 18,000 $547,000

Cost of direct materials purchases $12,834,000

d) The Total Direct Manufacturing Labor Cost (in dollars):

T1 T2

Direct labor per unit 2 hours 3 hours

Direct labor rate per hour $12 $16

Direct labor cost per unit $24 $48

Production level 165,000 units 41,000 units

Labor Cost ($) $3,960,000 $1,968,000

Total labor cost $5,928,000 ($3,960,000 + $1,968,000)

e) Total Overhead cost (in dollars):

Overhead rate = $20 per labor hour

Overhead cost per unit: T1 = $40 ($20 x 2) and T2 = $60 ($20 x 3)

T1 overhead = $20 x 2 x 165,000) = $6,600,000

T2 overhead = $20 x 3 x 41,000) = $2,460,000

Total Overhead cost = $9,060,000

Cost of goods produced:

Cost of opening inventory of materials = $547,000

Purchases of directials materials 12,834,000

less closing inventory of materials = $613,000

Cost of materials used for production 12,768,000

add Labor cost 5,928,000

add Overhead cost 9,060,000

Total production cost $27,756,000

f) Total cost of goods sold (in dollars):

Cost of opening inventory = $3,928,000

Total Production cost = $27,756,000

Cost of goods available for sale $31,684,000

Less cost of closing inventory $4,724,000

Total cost of goods sold $26,960,000

g) Total expected operating income (in dollars)

Sales Revenue: T1 and T2 $36,400,000

Cost of goods sold 26,960,000

Gross profit $9,440,000

less marketing & distribution 400,000

Total Expected Operating Income = $9,040,000

Step-by-step explanation:

a) Cost of beginning inventory of finished goods:

T1, (Direct materials + Labor + Overhead) X inventory units =

T1 = 20,000 x ($58 + 24 + 40) = $2,440,000

T2 = 8,000 ($78 + 48 + 60) = $1,488,000

Total cost of beginning inventory = $3,928,000

b) Cost of closing Inventory of finished goods:

T1 = 25,000 x ($58 + 24 + 40) = $3,050,000

T2 = 9,000 ($78 + 48 + 60) = $1,674,000

Total cost of closing inventory = $4,724,000