Morin, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2017.
Morin, Inc., produced 72500 units of product in 2017. Morin's management is estimating costs for 2018 on the basis of 2017 numbers. The following additional information is available for 2018.
REQUIREMENTS
Homework Answers
Ans.
1.
No of units Produced in 2017 = 72,500
No of units Produced in 2018 = 82,500
| Total Cost -2017 | Variable -2017 | Fixed -2017 | Rate per unit -2017 | Increase | Revised rate -2018 | Variable- 2018 | Fixed -2018 | Total Cost -2018 | |
| Direct Material | 326,250.00 | 326,250.00 | - | 4.50 | 8% | 4.86 | 400,950.00 | - | 400,950.00 |
| Direct Labour | 217,500.00 | 217,500.00 | - | 3.00 | 4% | 3.12 | 257,400.00 | - | 257,400.00 |
| Power | 54,375.00 | 54,375.00 | - | 0.75 | - | 0.75 | 61,875.00 | - | 61,875.00 |
| - | - | - | - | ||||||
| Supervision labour | 72,500.00 | 10,875.00 | 61,625.00 | 0.15 | - | 0.15 | 12,375.00 | 61,625.00 | 74,000.00 |
| Material handling labour | 72,500.00 | 29,000.00 | 43,500.00 | 0.40 | - | 0.40 | 33,000.00 | 43,500.00 | 76,500.00 |
| Maintanence labour | 72,500.00 | 29,000.00 | 43,500.00 | 0.40 | - | 0.40 | 33,000.00 | 43,500.00 | 76,500.00 |
| Depreciation | 90,000.00 | - | 90,000.00 | - | 5% | - | - | 94,500.00 | 94,500.00 |
| Rent property, taxes & admin | 115,000.00 | - | 115,000.00 | - | 7% | - | - | 123,050.00 | 123,050.00 |
| Total costs | 1,020,625.00 | 667,000.00 | 353,625.00 | 9.20 | 9.68 | 798,600.00 | 366,175.00 | 1,164,775.00 |
1. Total Manufacturing Cost for 2018 = Variable Cost + Fixed Cost
Total Manufacturing Cost for 2018 = $ 798,600 + $ 366,175 = $ 1,164,775
2.
Total cost per unit, 2017 = Total Cost / Number of units = $ 1,020,625 / 72,500 units = $ 14.077
Total cost per unit, 2018 = Total Cost / Number of units = $ 1,164,775 / 82,500 units = $ 14.118
3.
The costs should be classified accorging to the behaviour of cost as the total variable costs should be calculated on per unit basis, whereas the total fixed costs should be treated as one fixed amount and remain same (i.e not change when units produced are change) .
Better knowledge of fixed and variable costs will help Morin in pricing its product correctly, to know the actual contribution margin and control the costs accordingly.
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