Question

w Home IACCA Global & The New York Time... The Economist - W. _Home - BBC News TTED: ideas worths... o Apartments in Ne PERRIER 1 REQUIRED HW part 2 Help Save & Exit Submit Check my work kubin Company's relevant range of production is 20,000 to 23,000 units. When it produces and sells 21,500 units, its average costs per unit are as follows: 7:34 Direct materials Direct labor Variable manufacturing overhead Pixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense Average Cost per Unit $ 8.00 $ 5.00 $ 2.50 $6.00 $ 4.50 $ 3.50 $ 2.00 $ 1.50 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 21,500 units? 2. For financial accounting purposes, what is the total amount of period costs incurred to sell 21,500 units? 3. For financial accounting purposes, what is the total amount of product costs incurred to make 23,000 units? 4. For financial accounting purposes, what is the total amount of period costs incurred to sell 20.000 units? (For all requirements, do not round intermediate calculations.) Prey 1 of 3 !! Next >

Answer 1

Product costs are those costs which are incurred at the factory level during production process which may be direct or indirect costs. Of which, variable product costs will change when production volume increases or decreases whereas fixed product costs do not change, unless there are some conditions that have the capability to decrease or cause to increase the same. Product cost is nothing but the manufacturing cost which include direct materials, direct labor, variable & fixed mfg. overheads. Direct material cost per unit Direct labor cost per unit Variable mfg. overhead per unit Fixed mfg. overhead per unit For financial account, unit product cost $8.00 $5.00 $2.50 $6.00 $21.50 Period costs are those costs which are incurred outside the factory but for carrying out firm's selling and administrative related operating activities and financing activities. Of which, variable period costs will change when sales volume increases or decreases whereas fixed period costs do not change, unless there is any particular condition that has the capability to decrease and cause to increase the same. Fixed selling expense per unit Fixed admin. expense per unit Sales commission per unit (variable) Variable admin. expense per unit For financial account, unit period cost $4.50 $3.50 $2.00 $1.50 $11.50 Fixed costs are those costs which would remain the same in total irrespective of level of production or sales. It is a committed cost to be incurred by the firm whether it carries out operations or not. Therefore, Variable costs are those costs which would remain the same per unit irrespective of level of production or sales. It is an unit cost to be incurred by the firm only when the firm carries out its business operation. So, variable costs are the relevant costs for any decision making. 1) For financial account, unit product cost Number of units produced (or to make) Product costs to make 21500 units $21.50 [As calculated] 21,500 $462,250 ($21.50 x 21500]

2) For financial account, unit period cost Number of units sold (or to sell) Period costs to sell 21500 units $11.50 [As calculated] 21,500 $247,250 ($11.50 x 21500] Though not accepted by GAAP for reporting purpose, analyzing cost behavior by segregating total costs into variable, fixed and mixed is important for better cost control in manufacturing as well as sales process. Still, fixed costs will execute its normal behavior upto a particular volume of activity only. After that, it may change its behavior due to various reasons. Therefore, to decide whether a cost if relevant or not, volume upto which the costs execute their normal behavior shall be considered carefully. It is technically called as relevant range as it is the range within which a particular cost behavior will hold. 3) For financial account, unit product cost Number of units produced (or to make) Product costs to make 23000 units $21.50 [As calculated] 23,000 $494,500 [$21.50 x 23000] 4) For financial account, unit period cost Number of units sold (or to sell) Period costs to sell 20000 units $11.50 [As calculated] 20,000 $230,000 ($11.50 x 20000]