Question

Adams Manufacturing Company was started on January 1, 2018, when it acquired $78,000 cash by issuing common stock. Adams immediately purchased office furniture and manufacturing equipment costing $9,100 and $27,000, respectively. The office furniture had an 8-year useful life and a zero salvage value. The manufacturing equipment had a $3,000 salvage value and an expected useful life of three years. The company paid $11,200 for salaries of administrative personnel and $15,800 for wages to production personnel. Finally, the company paid $12,650 for raw materials that were used to make inventory. All inventory was started and completed during the year. Adams completed production on 4,500 units of product and sold 3,550 units at a price of $16 each in 2018. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.)

Required
a. Determine the total product cost and the average cost per unit of the inventory produced in 2018. (Round "Average cost per unit" to 2 decimal places.)
b. Determine the amount of cost of goods sold that would appear on the 2018 income statement. (Do not round intermediate calculations.)
c. Determine the amount of the ending inventory balance that would appear on the December 31, 2018, balance sheet. (Do not round intermediate calculations.)

Answer 1

Answer:

a.

* Total product cost: $36,450

* The average cost per unit of the inventory produced in 2018: $8.10

b.

Cost of goods sold that would appear on the 2018 income statement: $28,755

c.

The ending inventory balance that would appear on the December 31, 2018, balance sheet: $7,695.

Explanation:

a.

* Total product cost is equal to the costs incurred in the production process which including the following items:

+ Depreciation expenses of manufacturing equipment in 2018 which is calculated as: (27,000 - 3,000)/3 = $8,000;

+ Wages to production personal which is given at $15,800;

+ Raw Material which is given at $12,650.

=> Total product cost = 8,000 + 15,800 + 12,650 = $36,450

* The average cost per unit of the inventory produced in 2018: Product cost/ Unit started and completed in 2018 = 36,450/4,500 = $8.10

b.

The amount of cost of good sold in 2018 = Units sold in 2018 *  Average cost per unit of the inventory produced in 2018 = 3,550 * 8.10 = $28,755.

c.

The ending inventory as at December 31st 2018 = Average cost per unit of the inventory produced in 2018 * Ending inventory units = Average cost per unit of the inventory produced in 2018 * ( Units started and completed in 2018 - Units sold in 2018) = 8.10 * (4,500 - 3,550) = $7,695.