Manufacturing statements and cost behavior
Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.
| Per Unit | Variable Cost | Fixed Cost |
| Direct materials | $4.50 | $ — |
| Direct labor | 6.5 | — |
| Factory overhead | 9 | 50,000 |
| Selling | — | 70,000 |
| Administrative | — | 135,000 |
Production and sales totaled 20,000 rolls and 17,000 rolls, respectively There is no work in process. Tampa carries its finished goods inventory at the average unit cost of production.
Instructions:
1. Determine the cost of the finished goods inventory of light-gauge aluminum.
2. Prepare an income statement for the current year ended December 31
3. On the basis of the information presented:
1. Does it appear that the company pays commissions to its sales staff? Explain.
2. What is the likely effect on the $4.50 unit cost of direct materials if next year’s production increases? Why?
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