During its first year of operations,Silverman Company paid $14,000 for direct materials and $19,000 for production workers' wages.Lease payments and utilities on the production facilities amounted to $17,000 while general,selling,and administrative expenses totaled $8,000.The company produced 5,000 units and sold 3,000 units at a price of $15.00 a unit. What was Silverman's net income for the first year in operation?
A) $7,000
B) $12,000
C) $28,000
D) $37,000

Question

Quizplus · Accepted Answer

To calculate net income, first determine total revenue, then subtract the costs. Revenue is 3,000 units sold at $15 each, totaling $45,000. Costs include direct materials ($14,000), production workers' wages ($19,000), lease payments and utilities ($17,000), and general, selling, and administrative expenses ($8,000), totaling $58,000. However, since only 3,000 of the 5,000 units produced were sold, the cost of goods sold (COGS) needs to be adjusted for the units sold. The total production cost ($14,000 for materials + $19,000 for wages + $17,000 for lease and utilities = $50,000) is for 5,000 units, so the cost per unit is $10. The COGS for 3,000 units is 3,000 units * $10 = $30,000. Subtracting the COGS ($30,000) and the general, selling, and administrative expenses ($8,000) from the revenue ($45,000) gives a net income of $7,000.

During Its First Year of Operations,Silverman Company Paid $14,000 for Direct