Question

Kubin Company’s relevant range of production is 29,000 to 33,000 units. When it produces and sells 31,000 units, its average costs per unit are as follows:

Amount per Unit Direct materials $ 8.90

Direct labor $ 5.90

Variable manufacturing overhead $ 3.40

Fixed manufacturing overhead $ 6.90

Fixed selling expense $ 5.40

Fixed administrative expense $ 4.40

Sales commissions $ 2.90

Variable administrative expense $ 2.40

Required:

1. If 29,000 units are produced and sold, what is the variable cost per unit produced and sold?

2. If 33,000 units are produced and sold, what is the variable cost per unit produced and sold?

3. If 29,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?

4. If 33,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?

5. If 29,000 units are produced, what is the average fixed manufacturing cost per unit produced?

6. If 33,000 units are produced, what is the average fixed manufacturing cost per unit produced?

7. If 29,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?

8. If 33,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?

(Round per unit values to 2 decimal places.)

Answer 1

Answer

• All working forms part of the answer
• Concepts:

---Variable costs stay same ‘per unit’ but changes ‘in totality’ when no. of units increases or decreases.
---Fixed Costs stays same ‘in totality’ but changes ‘per unit’ when no. of units increases or decreases.

• First, calculation of Variable cost per unit and Total Fixed Costs:

Variable Cost per unit
Direct Materials	$                     8.90
Direct Labor	$                     5.90
Variable Manufacturing Overhead	$                     3.40
Sales Commission	$                     2.90
Variable Administrative expenses	$                     2.40
Total Variable Cost	$                   23.50

---No matter what the level of volume is, Variable cost per unit will be $ 23.50

Total Fixed Cost
Fixed cost	per unit at 31,000 units	Total Fixed Cost
Fixed manufacturing overhead	$                     6.90	$      213,900.00
Fixed selling expenses	$                     5.40	$      167,400.00
Fixed administrative expenses	$                     4.40	$      136,400.00
Total Fixed Cost		$      517,700.00

---Above mentioned Fixed Costs will remain same in totality whatever amount of units produced or sold.

• Requirements answer sequentially, along with required workings, based on above:

Requirement no.	Units produced/sold	Answers		Working/Explanation
1	29,000	Variable cost per unit	$                23.50	[will be same per unit = $ 23.5]
2	33,000	Variable cost per unit	$                23.50	[will be same per unit = $ 23.5]
3	29,000	Total variable cost	$     681,500.00	[29000 units x $ 23.50]
4	33,000	Total variable cost	$     775,500.00	[33000 units x $ 23.50]
5	29,000	Average Fixed manufacturing cost per unit	$                  7.38	[$ 213,900 / 29,000 units]
6	33,000	Average Fixed manufacturing cost per unit	$                  6.48	[$ 213,900 / 33,000 units]
7	29,000	Total amount of Fixed manufacturing overhead	$     213,900.00	[stays same, whatever the level of volume exists]
8	33,000	Total amount of Fixed manufacturing overhead	$     213,900.00	[stays same, whatever the level of volume exists]