December 31, 2007
Raw Materials (500 x $8)
Finished Goods (1,000 x $14) 14,000
Total Liabilities & SE
*($4,000 from raw materials purchases and $1,000 from electricity)
Greenville anticipates sales of products to occur as follows:
2008 1st Half
2008 2nd Half
2009 1st Half
2009 2nd Half
One-half of sales are cash sales. The other one-half are credit sales, which are collected in the following period. All items are sold for $24 each.
Production costs per unit are as follows:
Fixed Overhead ($4,000/2,500)
Total Unit Cost
Variable overhead represents electricity. Electricity costs are paid in the period following their use.
Fixed overhead represents depreciation of fixed assets. All depreciation is a factory cost.
Greenville’s fixed assets have a remaining life of 5 years.
Greenville has adopted the policy for finished goods that at the end of any period, one-half of the next period’s needs should be on hand. There are 1,000 units of inventory on hand January
Each unit of finished goods requires one unit of raw materials, which cost $8 per unit.
Greenville had adopted the policy that at the end of any period, all of the raw materials needed for the next period should be on hand. There are 500 units of raw materials on hand January 1,
2008. Raw materials are purchased on account, and are paid for in the period following purchase. Each unit produced requires one-quarter of labor at $8 per hour. Labor costs are paid in the cash as incurred.
Each unit produced requires $1 of electricity. Electricity is paid in the period following its use.
Fixed overhead represents depreciation of fixed assets, and is incurred at the rate of $2,000 per period (one-half year).