Two inventors recently organized as Innovation Inc., consult you regarding a planned new product. They have estimates of the cost of materials, labor, overhead, and other expenses for 2016 but need to know how much to charge for each unit to earn a profit in 2016 equal to 15% of their estimated total long-term investment of $600,000 (ignore income taxes). Their plans indicate that each unit of the new product requires the following: Direct Material- 4lb of a material costing $7.50 per lb. Direct Labor- 2hrs. Of a metal former's time at $16.50 per hr. And 0.6 hr. Of an assemblers time
Two inventors recently organized as Innovation Inc., consult you regarding a planned new product. They have estimates of the cost of materials, labor, overhead, and other expenses for 2016 but need to know how much to charge for each unit to earn a profit in 2016 equal to 15% of their estimated total long-term investment of $600,000 (ignore income taxes).
Their plans indicate that each unit of the new product requires the following:
Direct Material- 4lb of a material costing $7.50 per lb.
Direct Labor- 2hrs. Of a metal former's time at $16.50 per hr. And 0.6 hr. Of an assemblers time at $12 per hr.
Major items of production overhead would be annual rent of $69,690 for a factory building, $42,990 rent for machinery, and $32,550 of indirect material. Other production overhead is estimated to be $349,920. Selling expenses are an estimated 30% of total sales, and non-factory administrative expenses are 20% of total sales.
The consensus at Innovation is that during 2016 10,000 units of product should be produced for selling and another 2,000 units should be produced for the next years beginning inventory. Also, an extra 30,000 pounds of material will be purchased as beginning inventory for the next year. Because of the nature of the manufacturing process, all units started must be completed, so work in process inventories are negligible.
Incorporate the above data into a schedule of estimated total
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