Question

4. Montrose Company, a manufacturer of medical supplies, began the year with 10,000 units of product that cost $8 each. During the year, it produced another 60,000 units at a cost of $15 each. Sales for the year were expected to total 70,000 units. During November, the company needs to plan production for the remainder of the year. The company might produce no additional units beyond the 60,000 units already produced. On the other hand, the company could produce up to 100,000 additional units; the cost would be $30 per unit regardless of the quantity produced. Assume that sales are 70,000 units for the year at an average price of $50 per unit. The company uses LIFO cost-flow assumption and a periodic inventory method. A) What is the minimum production level for the remainder of the year that gives the largest cost of goods sold for the year? What is the cost of goods sold for that (minimum) production level? [4 points] B) What production level for the remainder of the year gives the smallest cost of goods sold for the year? What is the cost of goods sold for that production level? [4 points

Answer 1

	Unit	Cost / Unit		Cost
Opening	10000	8		80000
Production	60000	15		900000
Sale	70000	50		3500000
	Cost of Goods Sold = Opening + Production - Closing
	Cost of Goods Sold Till November
	Opening (10000 units @8)	80000
	Production (60000unit @15)	900000
			980000
	If Company decide not to produce any more units in further years
	Minimum COGS would be $ 980000 @ Production unit of 60000 unit
	If Company decide to produce 40000 units in further months
	Cost of Goods Sold Till November	980000
	Production of 40000 unit @ 30	1200000
				2180000
	Minimum COGS would be $ 2180000 @ Production unit of 100000 unit