Question

The accounting records for Miller Fixtures report the following production costs for the past year:

Direct Materials	$	650,000
Direct Labor		576,000
Variable Overhead		466,000

Production was 287,000 units. Fixed manufacturing overhead was $768,000.

For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent, excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by 10 percent. Variable manufacturing overhead per unit is expected to remain the same.

Required:

(a)	Prepare a cost estimate for a volume level of 297,000 units of product this year. (Do not round intermediate calculations. Round your answers to the nearest dollar amount. Omit the "$" sign in your response.)

Cost item	This year's cost
Direct material	$
Direct labor
Variable overhead
Fixed overhead
Total costs	$

(b)	Determine the costs per unit for last year and for this year. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

	Costs per unit
Last year	$
This year	$

Answer 1

(a)
Cost item	This year's cost
Direct materials [ 650000 * 297000 / 287000 * ( 1 + 20% ) ]	807178
Direct labor [ 576000 * ( 1 + 4% ) ]	599040
Variable overhead [ 466000 * 297000 / 287000 ]	482237
Fixed manufacturing overhead [ 768000 * ( 1 + 10% ) ]	844800
Total costs	2733255

(b)
	Cost per unit
Last year [ ( 650000 + 576000 + 466000 + 768000 ) / 287000 ]	8.57
This year [ 2733255 / 297000 ]	9.20

Note : It is not given whether the increase in direct labor by 4% is per unit or in total. The solution is provided by assuming the change is in total direct labor.

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