Question

Mattison manufactures two products: A and B. The company predicts a sales volume of 20,000 units for product A and desired ending finished-goods inventory of 1,000 units. These numbers for product B are 25,000 and 3,000, respectively. Mattison currently has 7,000 units of A in inventory and 9,000 units of B. The unit selling price for A and B are $250 and $200 respectively.
The following raw materials are required to manufacture these products:

Raw Material	Cost Per Pound	Required for Product A	Required for Product B	Desired ending direct materials	Beginning direct materials
X	$2.00	3 pounds	1 pound	1,800	5,000
Y	$4.50	2 pound	5 pounds	1,200	7,000

Product A requires 4 hours of labor; B requires 3 hours. The direct labor rate is $12 per hour.

An accounting assistant has prepared the detailed production overhead budget and the selling and administrative budget. The production overhead budget shows:

Variable cost of $2 per unit produced for both products

Fixed cost of $40,000 for product A and $50,000 for product B

Production overhead is applied on the basis of direct labor.

The selling and administrative budget shows:

Variable cost of $3 per unit sold for both products

Fixed cost of $50,000 for product A and $70,000 for product B

Prepare a multistep income statement

Answer 1

Calculation of Units Produced:
A = Sales + Closing Inventory - Opening Inventory = 20000 + 1000 - 7000 = 14000
B = Sales + Closing Inventory - Opening Inventory = 25000 + 3000 - 9000 = 19000

Fixed Production overhead per unit:
A = $40000 / 14000 = $2.86
B = $50000 / 19000 = $2.63