Question

E5-4B Gloria Corporation manufactures a single product. Monthly production costs incurred in the manufacturing process are shown below for the production of 4,000 units. The utilities and maintenance costs are mixed costs. The fixed portions of these costs are $300 and $200, respectively. Production in Units 4,000 Production Costs Direct materials $ 7,500 Direct labor 15,000 Utilities 2,100 Property taxes 1,000 Indirect labor 5,500 Supervisory salaries 1,800 Maintenance 1,400 Depreciation 2,400 Instructions (a) Identify the above costs as variable, fixed, or mixed. (b) Calculate the expected costs when production is 5,000 units.

Answer 1

Answer a.

Variable costs:
Direct materials
Direct labor
Indirect labor

Fixed costs:
Property taxes
Supervisory salaries
Depreciation

Mixed costs:
Utilities
Maintenance

Answer b.

For production of 4,000 units:

Fixed costs = Property taxes + Supervisory salaries + Depreciation + Fixed utilities + Fixed maintenance
Fixed costs = $1,000 + $1,800 + $2,400 + $300 + $200
Fixed costs = $5,700

Variable costs = Direct materials + Direct labor + Indirect labor + Variable utilities + Variable maintenance
Variable costs = $7,500 + $15,000 + $5,500 + ($2,100 - $300) + ($1,400 - $200)
Variable costs = $31,000

Variable cost per unit = Variable costs / Number of units produced
Variable cost per unit = $31,000 / 4,000
Variable cost per unit = $7.75

Total cost = Variable cost per unit * Number of units produced + Fixed costs
Total cost = $7.75 * Number of units produced + $5,700

For production of 5,000 units:

Total cost = $7.75 * Number of units produced + $5,700
Total cost = $7.75 * 5,000 + $5,700
Total cost = $44,450