Miller produces luxury water cooler. This is their first year in operation (starting the year with...

Miller produces luxury water cooler. This is their first year in operation (starting the year with $0 balances). The company produced 10,000 units (started and completed) and sold 9,000 units for $570,000. Miller paid $12 per unit in direct materials and $7 per unit in wages for production workers. Lease payments and utilities on the production facilities amounted to $23,500 and selling & administrative expenses were $18,000. Answer the following questions about Miller.

A. What is the cost per unit of a water cooler?

B. What is the gross margin per unit of a water cooler?

C. What is the balance in the inventory account before any water coolers were sold?

D. What is the cost of goods sold for the year?

E. What is the cost of inventory on the balance sheet at the end of the year?

F. What is the net income for the year?

Solutions

Expert Solution

Answer to Part A.

Cost per Unit = Direct Materials + Direct Labor + Lease payment & Utilities expense per Unit
Lease payment & Utilities expense per Unit = 23,500 / 10,000
Lease payment & Utilities expense per Unit = $2.35

Cost per Unit = $12 + $7 + $2.35
Cost per Unit = $21.35

Answer to Part B.

Gross Margin per Unit = Selling Price per Unit – Cost per Unit
Selling Price per Unit = 570,000 / 9,000
Selling Price per Unit = $63.33

Gross Margin per Unit = $63.33 - $21.35
Gross Margin per Unit = $41.98

Answer to Part C.

Balance of Inventory before Water Coolers are Sold = Cost per Unit * Units Produced
Balance of Inventory before Water Coolers are Sold = $21.35 * 10,000
Balance of Inventory before Water Coolers are Sold = $213,500

Answer to Part D.

Cost of Goods Sold = Units Sold * Cost per Unit
Cost of Goods Sold = 9,000 * $21.35
Cost of Goods Sold = $192,150

Answer to Part E.

Cost of Inventory at the end of Year in Balance Sheet = Units Remaining * Cost per Unit
Cost of Inventory at the end of Year in Balance Sheet = 1,000 * $21.35
Cost of Inventory at the end of Year in Balance Sheet = $21,350

Answer to Part F.

Net Income = Gross Margin – Selling and Administrative Expenses
Gross Margin = Sales – Cost of Goods Sold
Gross Margin = $570,000 - $192,150
Gross Margin = $377,850

Net Income = $377,850 - $18,000
Net Income = $359,850

ekkarill92 answered 1 year ago

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