Required:
1. Prepare a schedule of cost of goods manufactured.
2. Prepare an income statement.
3. Assume that the company produced the equivalent of 10,000 units of product during the year. What was the average cost per unit for direct materials? What was the average cost per unit for factory depreciation?
4. Assume that the company expects to produce 15,000 units of product during the coming year. What average cost per unit and what total cost would you expect the company to incur for direct materials at this level of activity? For factory depreciation? (In preparing your answer, assume that direct materials is a variable cost and that depreciation is a fixed cost; also assume that depreciation is computed on a straight-line basis.)
5. As the manager responsible for production costs, explain to the president any difference in the average costs per unit between (3) and (4) above.
6. Assuming the company produced 20,000 fully and partially finished units during the year, determine the cost components of the finished goods inventory, which is composed of 4,000 finished units.