Question

Kubin Company's relevant range of production is 15,000 to 19,000 units. When it produces and sells 17,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $7.60 $ 4.60 $2.10 $ 5.60 $ 4.10 $ 3.10 $1.60 $1.10 Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense

Answer 1

1) 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. 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. When the cost objective is units of production, only the direct unit costs such as direct material and direct labor cost per unit are considered as total unit product cost. All other manufacturing costs are considered as indirect costs. 1a) Direct materials per unit Direct labor per unit Direct manufacturing cost per unit Number of units sold Total direct manufacturing cost $7.60 $4.60 $12.20 17,000 $207,400 ($12.20 x 17000 units] 1b) Variable mfg. overhead per unit Fixed mfg. overhead per unit Indirect manufacturing cost per unit Number of units sold Total indirect manufacturing cost $2.10 $5.60 $7.70 17,000 $130,900 [$7.70 x 17000 units]

2) When the cost objective is mfg. department, all the mfg. costs such as direct material, direct labor, variable & fixed mfg. overhead cost per unit are considered as total unit product cost. All other manufacturing costs are considered as indirect costs. 2b) Total indirect manufacturing cost $0 NOTE: 2a) Direct materials per unit Direct labor per unit Variable mfg. overhead per unit Fixed mfg. overhead per unit Direct manufacturing cost per unit Number of units sold Total direct manufacturing cost $7.60 $4.60 $2.10 $5.60 $19.90 17,000 $338,300 ($19.90 x 17000 units] As all manufacturing costs including overhead costs are considered as direct manufacturing costs, firm's indirect manufacturing costs = zero.