Cycle Business manufactures and sells road and mountain bikes through a network of retail outlets in western Canada. Below is a partial list of expense items incurred in the most recent month (November), when 1,130 bicycles were manufactured, shipped, and sold. There was no beginning or ending work in process or finished goods inventory in November:
Item | October | November | ||||
Units produced and sold | 1,030 | 1,130 | ||||
Sales | $ | 1,030,000 | $ | 1,130,000 | ||
Leather used for the bicycle seats | 33,990 | 37,290 | ||||
Production manager’s salary | 6,650 | 6,650 | ||||
Life insurance for the company president | 265 | 265 | ||||
Electricity used in the production facilities* | 4,285 | 4,685 | ||||
Sales commissions | 46,300 | 51,560 | ||||
Internet advertising | 1,200 | 1,200 | ||||
Employee benefits for the production workers↑ | 24,720 | 27,120 | ||||
Property taxes on the production facilities | 1,650 | 1,650 | ||||
Shipping costs | 46,300 | 51,560 | ||||
Salary of the chief financial officer | 11,300 | 11,300 | ||||
*Each month, regardless of how much electricity is used, Cycle Business pays a $165 base charge to the utilities company. | ||||||
↑Employee benefits total 20% of the wages paid to production workers, who on average earn $20 per hour. Each bicycle requires 6 hours of direct labour. | ||||||
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Cycle Business | |||||
Calculation of variable cost per unit and fixed costs | |||||
October | November | Nature | |||
Units | 1,030.00 | 1,130.00 | |||
Leather cost | 33,990.00 | 37,290.00 | |||
Leather cost per unit | 33.00 | 33.00 | Variable | ||
Production manager’s salary | 6,650.00 | 6,650.00 | Fixed | ||
Electricity used in the production facilities | 4,285.00 | 4,685.00 | Mixed | ||
Less: | 165.00 | 165.00 | Fixed | ||
Electricity used in the production facilities | 4,120.00 | 4,520.00 | Variable | ||
Per unit cost | 4.00 | 4.00 | |||
Property taxes on the production facilities | 1,650.00 | 1,650.00 | Fixed | ||
Labor hour per unit | 6.00 | ||||
Labor cost per hour | 20.00 | ||||
Labor cost per unit | 120.00 | ||||
Employee benefits % | 20% | ||||
Employee benefits cost per unit | 24.00 | ||||
Manufacturing cost of 1330 units in December | |||||
Particulars | Per unit cost | Variable cost | Fixed cost | Total cost | |
Units | 1,330.00 | ||||
Leather cost | 33.00 | 43,890.00 | - | 43,890.00 | Variable cost is calculated as per unit cost * 1,330 units. |
Production manager’s salary | - | 6,650.00 | 6,650.00 | Variable cost is calculated as per unit cost * 1,330 units. | |
Electricity used in the production facilities | 4.00 | 5,320.00 | 165.00 | 5,485.00 | Variable cost is calculated as per unit cost * 1,330 units. |
Labor cost | 120.00 | 159,600.00 | - | 159,600.00 | Variable cost is calculated as per unit cost * 1,330 units. |
Employee benefits cost | 24.00 | 31,920.00 | - | 31,920.00 | Variable cost is calculated as per unit cost * 1,330 units. |
Property taxes on the production facilities | - | 1,650.00 | 1,650.00 | Variable cost is calculated as per unit cost * 1,330 units. | |
Manufacturing cost of December | 181.00 | 240,730.00 | 8,465.00 | 249,195.00 |
Cycle Business manufactures and sells road and mountain bikes through a network of retail outlets in...
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