For a particular period, Jack, who is the production manager of an organization that follows the Weighted-Average method of inventory valuation has been given the task to perform at a gross margin percentage of 32.00%. He has been informed by the marketing department that given the current scenario, the unit sales price of the product is frozen at $5.00, and it has been agreed that 5,500 units will be completed and removed from Work-in-Progress (WIP) Inventory into Finished Goods Inventory. He has been asked by the top management to run the entire process: procure the Direct Materials (DM), engage the labor, and apply the Manufacturing Overheads (MOH) in a way that fulfills management's desire of a gross margin percentage of 32.00%. In the given scenario, what should the maximum total costs of units completed and removed from the WIP Inventory be?

Question

Quizplus · Accepted Answer

Gross Margin per Unit = Sales Price per Unit × Gross Margin %
= $5.00 × 32%
= $1.6
Unit Costs = Sales Price per Unit - Gross Margin per Unit
= $5.00 - $1.6
= $3.4
Unit Costs = Total Costs of Units Completed and Removed from WIP Inventory/Units Completed this Period;
Assume that Total Costs of Units Completed and Removed from WIP Inventory is X.
$3.4 = X/5,500 units
X = $3.4 × 5,500 units
X = $18,700

For a Particular Period, Jack, Who Is the Production Manager