10) Alpha Company provides the following information for their first year of ope

Question

10) Alpha Company provides the following information for their first year of operations in 2016:             Sales, 5,000 units @ $10 each             Total production, 7,500 units             Selling and administrative costs:          Fixed                  $1,000                      Variable                       $1 per unit             Production costs per unit:          Direct materials            $2.00                      Direct labor                   $2.00                      Variable overhead        $1.00             Fixed manufacturing overhead       $7,500 Alpha Company uses absorption costing. Use this information to determine for Alpha Company the FY 2016: (Round & enter final answers to: the nearest whole dollar for total dollar answers, nearest penny for unit costs or nearest whole number for units) 1. Cost of Goods Sold 2. Net Income 3. Cost of Ending Inventory

Explanation / Answer

Calculation of cost of goods sold Unit Cost Total Cost Direct Materials $2.00 $10,000 Direct Labour $2.00 $10,000 Variable Overhead $1.00 $5,000 Fixed Manufacturing Overhead $1.00 $5,000 Cost of goods sold $6.00 $30,000 Fixed Manufacturing Overhead cost per unit = Total cost / No.of units produced = $7500 / 7500 units = $1 per unit Calculation of Net Income Sales (5000 units * $10) $50,000 Less : Cost of goods sold $30,000 Gross Margin $20,000 Less : Selling and administrative costs - Fixed Cost $1,000 - Variable Cost (5000 units * $1) $5,000 Net Income $14,000 Calculation of Cost of Ending Inventory Cost of ending Inventory = No.of units in Inventory * Cost of production per unit Cost of ending Inventory = 2500 units * $6 per unit = $15,000

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