Question

Problem 1 Glisan Corporation's relevant range of activity is 4,000 and sells 6,000 units, its average costs per unit are as I 000 units to 8,000 units. When it produces rage costs per unit are as follows: Average Cost per Unit $5.75 $3.00 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense $1.60 $4.50 $0.75 $0.60 $1.50 $0.55 Required: 6,000 units? Show all work! cial reporting purposes, what is the total amount of product costs incurred to make . For financial reporting purposes, what is the total amount of period costs incurred to sen , units? Show all work! . If 5,000 units are sold, what is the total amount of variable costs related to the units sold? Show all work! If the selling price is $19.10 per unit, what is the contribution margin per unit sold? Show all work! What incremental manufacturing cost will the company incur if it increases production from 6,000 to 6,013 units? Show all work! fAs the 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 the actual numbers to justify your answers!!!)

Answer 1

a. Statement showing total amount of product cost incurred for 6000 units. Amount in $

Particular	Amount( per unit)	Amount(6000units)
Direct Materials	5.75
Add:Direct Labor	3
Prime cost	8.75
Add: Variable Manufacturing OH	1.6
Variable production Cost	10.35
Total Variable production Cost (6000*10.35)		62100
Add: Fixed manufacturing OH(6000*4.5)		27000
Total Amount of product cost incurred		89100

b. Statement Showing total amount of period cost incurred to sell the product

Particular	Avg cost per unit
Sales Commission	1.5
Add: Variable Administrative expenses	0.55
Add: Fixed selling expenses	0.75
Add: Fixed administrative expenses	0.6
Total period cost of sell per unit	3.4

Total amount of period cost incurred to sell 6000 units = (6000*$3.4) = $20400

c. Statement Showing total amount of variable cost incurred to units sold

Particular	Avg cost per unit	Total cost
Direct material	5.75
Direct labor	3
Variable manufacturing OH	1.6
sales commission	1.5
Variable administrative expenses	0.55
Total variable cost	12.4
Total variable cost for 5000 units		=(5000*12.4)=62000

d. Statement showing contribution margin per unit

Selling price per unit = $19.1

Less: Variable cost per unit =$12.4

contribution margin per unit = $6.7

e. Glisan Corporation's relevant range of activity is 4000 to 8000 units.so total fixed cost incurred will be constant in this range of production whether production is 5000 units or 7000 units.

If production increase from 6000 units to 6013 units there will be no change in fixed cost. the only cost incurred for production and sell of additional units between this range will be variable cost.

Statement sowing incremental cost incurred

Particular	Amount( per unit)
Direct Materials	5.75
Add:Direct Labor	3
Prime cost	8.75
Add: Variable Manufacturing OH	1.6
Variable production Cost	10.35
Variable production Cost for 13 units	134.55

f. As a product manager of Glisan Corp , I would adopt marginal costing method for decision making to reduce cost, incentive employee and /or increase sales because in marginal costing we can find easily relation between no of units soled and contribution made by company between some range of production on that level production is constant. from this we can decide level of production and sale. this will also help in calculation of incentive for employee on increase of their efficiency. marginal costing methods is adopted only when fixed cost is constant for a given range and on achieving break even point for prodution fixed cost incuured will become irrelevent for decision making.As no of unit sold increase contribution increase and hence profit will increase

Break even point = total fixed cost/ contribution per unit

this will help in deciding no of unit required to be prodused or sold so company will be profitable.