Question

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Best minus Cola spends $ 3 on direct​ materials, direct​ labor, and variable manufacturing overhead for every unit​ (12-pack of​ soda) it produces. Fixed manufacturing overhead costs $ 3 million per year. The​ plant, which is currently operating at only 75​% of​ capacity, produced 25 million units this year. Management plans to operate closer to full capacity next​ year, producing 30 million units. Management​ doesn't anticipate any changes in the prices it pays for​ materials, labor, and manufacturing overhead.

Requirement 1. What is the current total product cost (for the 25 million units), including fixed and variable costs? Determine the formula, then calculate the current total product cost (for the 25 million units), including fixed and variable costs. + = = Total product costs million lion + million Requirement 2. What is the current average product cost per unit? Determine the formula, then calculate the current average product cost per unit. (Enter your answer to the nearest cent.) Current average = product cost per unit million 1 million = per unit Requirement 3. What is the current fixed cost per unit? Determine the formula, then calculate the current fixed cost per unit. (Enter your answer to the nearest cent.) = Current fixed cost per unit | million million = per unit Requirement 4. What is the forecasted total product cost next year (for the 30 million units), including fixed and variable costs? Determine the formula, then calculate the forecasted total product cost next year (for the 30 million units). Forecasted = total product costs million + million = million

Answer 1

1)

Total fixed cost	+	Total variable cost	=	Total product cost
$3 million	+	(3*25)= 75 million	=	$78 million

2)

Total product costs	/	Current year's produced units	=	Current average product cost per unit
$78 million	/	25 million	=	$3.12 per unit

3)

Total fixed cost	/	Current year's produced units	=	Current fixed cost per unit
$3 million	/	25 million	=	$0.12 per unit

4)

Total fixed cost	+	Forecasted total variable cost	=	Forecasted total product cost
$3 million	+	(3*30)= 90 million	=	$93 million

5)

Forecasted total product costs	/	Next year's forecasted units	=	Forecasted average product cost per unit
$93 million	/	30 million	=	$3.10 per unit

6)

Total fixed cost	/	Next year's forecasted units	=	Forecasted fixed cost per unit
$3 million	/	30 million	=	$0.10 per unit

7) The average product cost decreases as production volume increases because the company is spreading its fixed costs over 5 million more units. The company will be operating more efficiently, so the average cost of making each unit decreases.