Question

Gilsan Corporation relevant range of activity is 4,000 units to 8,000 units. When it produces and sells 6,000 units, its average cost per unit is as follows:

AVERAGE COST PER UNIT

DIRECT MATERIALS $5.75

DIRECT LABOR $3.00

VARIABLE MANUFACTURING OVERHEAD $1.60

FIXED MANUFACTURING OVERHEAD $4.50

FIXED SELLING EXPENSE $.075

FIXED ADMINISTRATIVE EXPENSE $0.60

SALES COMMISSION $1.50

VARIABLE ADMINISTRATIVE EXPENSE $0.55

1. FOR FINANCIAL REPORTING PURPOSES, WHAT IS THE TOTAL AMOUNT OF PRODUCT COSTS INCURRED TO MAKE 6,000 UNITS? SHOW ALL WORK

2. FOR FINANCIAL REPORTING PURPOSES WHAT IS THE TOTAL AMOUNT OF PERIOD COSTS TO SELL 6,000 UNITS? SHOW ALL WORK

3. IF 5,000 UNITS ARE SOLD, WHAT IS THE TOTAL AMOUNT OF VARIABLE COSTS RELATED TO THE UNITS SOLD? SHOW ALL WORK

4. IF THE SELLING PRICE IS $19.10 PER UNIT, WHAT IS THE CONTRIBUTION MARGIN PER UNIT SOLD? SHOW ALL WORK

5. WHAT INCREMENTAL MANUFACTURING COST WILL THE COMPANY INCUR IF IT INCREASES PRODUCTION FROM 6,000 TO 6,013 UNITS. SHOW ALL WORK

6. AS A PRODUCT MANAGER OF GLISAN CORP YOU HAVE TO CONSTANTLY MAKE DECISIONS, WHAT METHOD WOULD YOU USE TO REDUCE COST, INCENTIVES EMPLOYEES, AND/OR INCREASE SALES (TRY TO USE ACTUAL NUMBERS TO JUSTIFY YOUR ANSWER)

Answer 1

Answer (3) Total Amount of Variable cost for 5000 units Direct Material (5000 x $5.75) 28,750 Direct Labour 15,000 (5000 $3) Variable Manufacting overhead 8,000 (5000 X $ 1.60) Variable Administrative 2750 Expensei (5000X $ 0.55) 7500 Sales Commission 11000 X $1.50) 62,000 Total variable cost

Answer (4) * Contribution margin per unit 19.10 SP 1-) Variable cost Direct Material $5-7 Direct Labour $ 3.00 Manufacturing o 8 1.60 Variable overhead Variable Expense, Administrative $0.55 12.4 Sale Commission Contribution per unit 67

cost to be increase 6013 units Answer (5) Incremental manufacturing incurred if production from 6000 units to Direct Material (13X $5.75) Direct Labour (13 X $3.00) variable Manufacturing overhead (13X $ 1.60) Totul Phcremental cost 74.75 39 20.8 134.55

louse Answer (6) As a Product manager I chos Marginal costing to reduce cost incentive emplafeer & for increasing Sales. For Justification : In above example SP (8) 19.10 - Ve 12.40 Contribution per unit FT Fixed cost = 35100 Break Even Point - Fixed cost contribution Peon't 35100 = 5239 6.7 배서 * Therefore in order to increase Profit the company must Produce & seu above 5239 units. 90+

costs incurred Answer (1) Total Amount of product to make Gooo units Direct Material (6000 x $5.75) Direct Labour (6000 X 83) 34,500 18,000 9600 Variable Manufacturing overhead (6000 x $1060) Fixed Manufacturing overhead (6000 X $ 4.50) Total Product Cost 27,000 89, loo

Answer (2) Total Amount 6,000 units of period cost to sell Variable Administration Expenses 3300 (6000 X $0.55) Fixed Administrative Expenses 3600 (6000 x $ 0.60) Fixed selling expenses 4500 (6000 X $6.75) Sales Commission (6000 X 81.50) Total Period Cost 20,400 9000