Question

Newton Corporation entered into the following transactions during its first year of operations. (Assume all transactions involve cash.) 1) Acquired $2,000 of capital from the owners. 2) Purchased $600 of direct raw materials. 3) Used $400 of these direct raw materials in the production process. 4) Paid production workers $800 cash. 5) Paid $400 for manufacturing overhead. 6) Started and completed 200 units of inventory. 7) Sold 50 units at a price of $12 each. 8) Paid $80 for selling and administrative expenses.

The amount of net income for the year was:

$100.

$75.

$50.

$120.

Answer 1

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	Correct option is: $120
	Workings:
	Sales Revenue (50 units X $12)	=	$     600
Less:	Cost of goods sold (50 units X $8)	=	$     400
	Gross Income	=	$     200
Less:	Selling and administrative expenses	=	$       80
	Net Income	=	$     120
	Cost of goods produced per unit:
	Direct Material used	=	$     400
	Direct labor	=	$     800
	Manufacturing overheads	=	$     400
(i)	Total cost of goods manufactured	=	$ 1,600
(ii)	Number of units produced	=	200
(i) / (ii)	Cost of goods produced per unit	=	$         8