Assume you have developed and tested a new electronic product for your new busin

Question

Assume you have developed and tested a new electronic product for your new business. You purchase pre-programmed computer chips at $80 per unit. Other component costs include: plastic casings at $25 per unit and assembly hardware at $8 per unit. Direct labor costs are $16 per hour and three units can be produced per hour. You intend to sell each unit at a 60 percent mark-up over the total costs of producing each unit. The plan is to produce 600 product units per month in January, February, and March. Sales are expected to be: 280 units in January, 620 units in February, and 800 units in March.

A.    Calculate the dollar amount of sales revenue expected in each month (i.e., January, February, and March) and for the first quarter of the year.

B.     Prepare a cost of goods sold schedule for each of the three months and for the first quarter of the year. Using your cost of goods sold estimates and the sales revenues expected in Part A, calculate the gross earnings for January, February, and March, as well as for the first quarter of the year. (4 marks)

Explanation / Answer

a calculation of the sales revenue of each month cost per unit purchase of pre programmed computer chips 80 plastic casting 25 assembly hardware 8 direct labour ( 16 / 3 ) 5.33 total cost per unit 118.33 note direct labor 16 per 1 hour , and 3 products cam be produced in 1 hour so the direct labour per unit ( cost / 3 units ) direct labor per unit ( 16 / 3 ) 5.33 direct labor per unit mark up is 60 % over cost of product selling price cost per unit + markup selling price 118.33 + 60 % selling price 189.33 months january february march total 1 sales in units 280 620 800 1700 2 selling price 189.33 189.33 189.33 189.33 3 sales value ( 1 * 2 ) 53012 117385 151464 321861 b cost of goods sold months january february march total 1 production per month 600 600 600 600 2 cost per unit 118.33 118.33 118.33 118.33 3 sales value ( 1 * 2 ) 70998 70998 70998 70998 gross earnings months january february march total 1 selling price 189.33 189.33 189.33 189.33 2 cost per unit 118.33 118.33 118.33 118.33 3 gross margin per month ( 1 - 2 ) 71 71 71 71 4 sales in units 280 620 800 1700 5 total gross margin ( 3 * 4 ) 19880 44020 56800 120700

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