Accounting Management: Cost Classification and Ethics

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TASK 1: Cost Classification and Ethics The Sorrel Pharmaceuticals Corporation manufactures a variety of drugs that are marketed internationally. Inventories on May 31 and June 30 were as follows: May 31 June 30 Materials Inventory $354,100 $327,400 Work in Process Inventory 112,600 116,400 Finished Goods Inventory 138,500 142,800 Purchases of materials for June were $142,600. Direct labor costs were incurred and computed on the basis of 27,000 hours at $8 per hour. Actual overhead costs incurred in June were as follows: operating supplies used, $5,700; janitorial and materials handling labor, $38,100; employee benefits $110,800; heat, light, and power, $50,000; factory depreciation, $8,400; property taxes, $8,000; and expired…show more content…
ANSWER: We have: • Expected variable unit cost: $24  Direct materials $10.90  Direct labor $7.18  Overhead $1.92  Selling cost $ 4.00 • Annual fixed costs: $68,700  Taxes on property used $8,870  Depreciation on building and equipment $18,920  Advertising $38,840  Other $2,070 a. Compute the number of units that must be sold to earn a profit of $80,000. Call A is the number of units that must be sold to earn a profit of $80,000 We have:  Sale = 49A  Variable cost = 24A  CM = 49A – 24A = 25A  Annual fixed cost: $68,700  Operating income = CM - Annual fixed cost = 25A - $68,700 Profit by $80,000 that means: 25A - $68,700 = $80,000 => A = 5,948 units So the number of units that must be sold to earn a profit of $80,000 is 5,948 units b.
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