5. Manufacturing statements and cost behavior
Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.
| Per Unit |
Variable Cost |
Fixed Cost |
| Direct materials |
$4.50 |
$ — |
| Direct labor |
6.5 |
— |
| Factory overhead |
9 |
50,000 |
| Selling |
— |
70,000 |
| Administrative |
— |
135,000 |
Production and sales totaled 20,000 rolls and 17,000 rolls, respectively There is no work in process. Tampa carries its finished goods inventory at the average unit cost of production.
Instructions:
- Determine the cost of the finished goods inventory of light-gauge aluminum.
- Prepare an income statement for the current year ended December 31
- On the basis of the information presented:
- Does it appear that the company pays commissions to its sales staff? Explain.
- What is the likely effect on the $4.50 unit cost of direct materials if next year’s production increases? Why?
