Question: In its first year of operations, a company paid $4,000 for direct material and $8,500 for production workers wages. Lease payments and utilities on the production facilities amounted to $7,500 while general, selling, and administrative expenses (GSA) totaled $3,000. The company produced 5,000 units and sold 4,000 at a price of $7.50 a unit.
1. What was the company's net income for the first year of operation?
a) $11,000
b) 7,000
c) 14,000
d) 20,000
2. Which transactions would cause net income for the period to be lower?
a) paid 1,600 cash for raw material cost
b) paid administrative salaries for 2,500
c) depreciated production equipment for 3,000
d) purchased 5,000 of merchandise inventory