Question

In: Accounting

The company produces one type of product. Its production volumes per year are 24 thousand. pcs....

The company produces one type of product. Its production volumes per year are 24 thousand. pcs. The production department employs four workers, who are paid 6 euros for each product produced. Each worker produces 6 thousand. pcs. products per year. The annual salary of the administration staff consists of 15,000 Eur. The raw materials required for the production of one product cost 5 Eur., And additional materials for one product - 1 Eur. The company uses machines in the production process, which cost 8,000 Eur and will be used for 5 years, and other equipment, which cost 900 Eur and will be used for 5 years. The company pays EUR 2,000 per year for the maintenance and management of the premises. Communication and other services cost the company 1700 Eur per year. The company plans to receive 30 percent. profit for each unit of product sold. Depreciation of fixed assets is calculated using the straight-line method. Calculate the commercial cost, price (excluding VAT) and gross profit of one product.

Solutions

Expert Solution

Commercial Cost = €308,480

Price (excluding VAT) = €401,024

Gross profit on product = €137,024

Gross profit on one piece = €5.7093

Working note 1:

Depreciation on machinery = Cost of machinery / Useful life

= €8,000 / 5

= €1,600

Working note 2:

Depreciation on equipment = Cost of equipment / Useful life

= €900 / 5

= €180

Gross profit on product = Price of product - Direct labor - Direct materials

= 401,024 - 144,000 - 120,000

= €137,024

Gross profit on one piece = (Price of product / Number of pieces) - Direct labor cost per piece - Direct material cost per piece

= (€401,024 / 24,000) - €6 - €5

= €16.7093 - €6 - €5

= €5.7093

Note:

  • Gross profit only considers the direct costs and not operating costs.
  • Additional material consumed is assumed as the indirect material.

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