Mary\'s Mugs produces and sells varlous types of ceramic mugs. The business bega
ID: 2334783 • Letter: M
Question
Mary's Mugs produces and sells varlous types of ceramic mugs. The business began operations on January 1, year 1, and its costs incurred during the year include these $ 3,750 23,190 1110 2,410 Direct manufacturing labor oosts 12,200 4,200 On December 31, year 1, dinect materials inventory consisted of 3,750 pounds of material. Production in that year was 15,000 mugs. All prices and unit variable costs remained constant during the year.Sales revenues for year 1 was $50,060. Finished goods inventory was $4,300 on December 31, year 1. Each finished mug requires 0.4 pounds of material. (Do not round Intermediate calculations .Computo the direc materials ivemory cost, December 31, year 1. b. Compute the finished goods ending inventory in units on December 31, year 1. (Do not round Intermediate calculations.) c. Compute the selling price per unt. (Round your answer to 2 decimal places ) d. Compute the operating profit (loss) for year 1Explanation / Answer
Solution: a. Direct materials inventory $2,343.75 Working Notes: Direct material used $3,750 for 15,000 mugs Each mug required 0.4 pounds of material For 20,000 mugs material required = mugs x material required per mug =15,000 x 0.40 = 6,000 pounds Direct material used $3,750 for 15,000 mugs Direct material cost per pound = Direct materials cost for 15,000 mugs/Material required for 15,000 mugs =$3,750/6,000 =$0.625 per pound Direct materials inventory = Inventory on 31st December x cost per pound =3,750 x 0.625 =$2,343.75 b. Finished goods inventory 2,000 units Working Notes: Manufacturing cost of 15,000 mugs Direct material $3,750 Direct manufacturing labor 23,190 Variable Indirect manufacturing costs 1,110 Fixed indirect manufacturing costs 4,200 Manufacturing cost of 15,000 mugs $32,250 Manufacturing cost per mug =Total Manufacturing cost/15,000 mugs =$32,250/15,000 =$2.15 per mug Finished goods inventory = $4,300 Finished goods inventory in units = Finished goods inventory value / Cost per unit =$4,300/$2.15 =2,000 units c. Selling price $3.85 Working Notes: Units produced during the period 15,000 mugs Less: Units of finished goods in inventory 2000 mugs calculated in b. above Units of finished goods sold during Year 1 13,000 mugs Selling price per unit = Total sales / total units sold =$50,060/13000 =$3.85076 =$3.85 d. Operating Profit $7,500 Working Notes: Sales units sold 13000 mugs 50,060 a Cost of Mugs produced (15,000 mugs) Variable Direct materials cost $3,750 b Direct Manufacturing labor costs 23,190 c Indirect manufacturing costs 1,110 d Administration and marketing 2,410 e Fixed cost Administration and marketing 12,200 f Indirect manufacturing costs 4,200 g Cost of Mugs produced (15,000 mugs) $46,860 h=b+c+d+e+f+g Less: Finished goods inventory (2000 mugs) $4,300 I = given Cost of Mugs produced (13,000 mugs) $42,560 J = h-i Operating Profit $7,500 K=a-J [50,060 - $42,560 =$7,500 ] Please feel free to ask if anything about above solution in comment section of the question.