Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.
|
Per Unit
|
Variable Cost
|
Fixed Cost
|
|
Direct materials
|
$4.50
|
$ -
|
|
Direct labor
|
6.5
|
-
|
|
Factory overhead
|
9
|
50,000
|
|
Selling
|
-
|
70,000
|
|
Administrative
|
-
|
135,000
|
Production and sales totaled 20,000 rolls and 17,000 rolls, respectively There is no work in process. Tampa carries its finished goods inventory at the average unit cost of production.
Instructions:
a. Determine the cost of the finished goods inventory of light-gauge aluminum.
b. Prepare an income statement for the current year ended December 31
c. On the basis of the information presented:
1. Does it appear that the company pays commissions to its sales staff? Explain.
2. What is the likely effect on the $4.50 unit cost of direct materials if next year's production increases? Why?