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# The answer to Product cost

Walton Manufacturing Company was started on January 1, 2008, when it acquired \$85,000 cash by issuing common stock. Walton immediately purchased office furniture and manufacturing equipment costing \$10,000 and \$54,000, respectively. The office furniture had a five-year useful life and a zero salvage value. The manufacturing equipment had a \$4,000 salvage value and an expected useful life of five years. The company paid \$11,000 for salaries of administrative personnel and \$16,000 for wages to production personnel. Finally, the company paid \$16,000 for raw materials that were used to make inventory. All inventory was started and completed during the year. Walton completed production on 7,000 units of product and sold 6,000 units at a price of \$15 each in 2008. (Assume that all transactions are cash transactions.)

Please show how to work the following required items:

A.Determine the total product cost and the average cost per unit of the inventory produced in 2008.

B.Determine the amount of cost of goods sold that would appear on the 2008 income statement.

C.Determine the amount of the ending inventory balance that would appear on the December 31, 2008, balance sheet.

D.Determine the amount of net income that would appear on the 2008 income statement.

E.Determine the amount of retained earnings that would appear on the December 31, 2008, balance sheet.

F.Determine the amount of total assets that would appear on the December 31, 2008, balance sheet.

Thank you very much

#### Solution Preview

a. The total product cost would be the sum of material, labor and overhead (depreciation on manufacturing equipment)
Material used = 16,000
Labor = 16,000
Depreciation = (54,000-4,000)/5 = 10,000
Total product cost = 16,000+16,000+10,000=\$42,000
Total units produced = 7,000
Average cost per unit = 42,000/7,000 = \$6

b. Units sold are 6,000
Cost of ...

#### Solution Summary

The solution explains how to calculate the product cost and its impact on the balance sheet and the income statement when goods are produced and sold

\$2.19