Denver Office Equipment manufactures and sells metal shelving. It began operations on January 1, 2011.

Costs incurred for 2011 are as follows (V stands for variable; F stands for fixed):

Variable manufacturing costs are variable with respect to units produced. Variable marketing,
distribution, and customer-service costs are variable with respect to units sold. Inventory data are as
follows:

Production in 2011 was 123,000 units. Two pounds of direct materials are used to make one unit of
finished product. Revenues in 2011 were $594,000. The selling price per unit and the purchase price per
pound of direct materials were stable throughout the year. The company’s ending inventory of finished
goods is carried at the average unit manufacturing cost for 2011. Finished-goods inventory at December
31, 2011, was $26,000.

REQUIRED

1. Calculate direct materials inventory, total cost, December 31, 2011.

2. Calculate finished-goods inventory, total units, December 31, 2011.
3. Calculate selling price in 2011.
4. Calculate operating income for 2011.
Foxwood Company is a metal- and woodcutting manufacturer, selling products to the home
construction market. Consider the following data for 2011:

REQUIRED

1. Prepare an income statement with a separate supporting schedule of cost of goods manufactured.
For all manufacturing items, classify costs as direct costs or indirect costs and indicate by V or F whether
each is basically a variable cost or a fixed cost (when the cost object is a product unit). If in doubt, decide
on the basis of whether the total cost will change substantially over a wide range of units produced.

2. Suppose that both the direct material costs and the plant-leasing costs are for the production of
900,000 units. What is the direct material cost of each unit produced? What is the plant-leasing cost per
unit? Assume that the plant-leasing cost is a fixed cost.

3. Suppose Foxwood Company manufactures 1,000,000 units next year. Repeat the computation in
requirement 2 for direct materials and plant-leasing costs. Assume the implied cost-behavior patterns
persist.