Accounting Management: Cost Classification and Ethics

2396 Words Jan 10th, 2013 10 Pages
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 portion of
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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. Compute the number of units that must be sold if advertising costs rise by $12,000 and a