The accounting records for Portland Products report the following manufacturing costs for the past year.
Direct materials $ 320,000
Direct labor 267,000
Variable overhead 237,000
Production was 140,000 units. Fixed manufacturing overhead was $774,000. For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent, excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by 10 percent. Variable manufacturing overhead per unit is expected to remain the same.
Required: a. Prepare a cost estimate for a volume level of 112,000 units of product this year.
b. Determine the costs per unit for last year and for this year.
Solution: b: | ||||||
Calculation of Cost Per Unit of Last Year | ||||||
Total Cost | "/" By | Total Production Unit | = | Cost Per Unit | ||
Direct Materials | $ 320,000 | "/" By | 140,000 | = | $ 2.29 | |
Direct Labor | $ 267,000 | "/" By | 140,000 | = | $ 1.91 | |
Variable Overhead | $ 237,000 | "/" By | 140,000 | = | $ 1.69 | |
Fixed Manufacturing Overhead | $ 774,000 | "/" By | 140,000 | = | $ 5.53 | |
Total = Cost Per Unit of Last Year = | $ 1,598,000 | $ 11.41 | ||||
Calculation of Cost Per Unit of This Year | ||||||
Cost Per Unit of Last Year | "X" By | Revised Cost % in New Year | = | Revised Cost Per Unit | ||
Direct Materials | $ 2.29 | "X" By | 120% | = | $ 2.74 | |
Direct Labor | $ 1.91 | "X" By | 104% | = | $ 1.98 | |
Variable Overhead | $ 1.69 | "X" By | 100% | = | $ 1.69 | |
Fixed Manufacturing Overhead | = | $ 7.60 | ||||
($ 774,000 X 110% ) / 112,000 Units | ||||||
= | $ 14.02 | |||||
Total = Cost Per Unit of This year | ||||||
Solution: A: | ||||||
Calculation of estimated Cost volumet at 112,000 Units Level | ||||||
Total Cost | "X" By | Total Production Unit | = | Total Cost | ||
Direct Materials | $ 2.74 | "X" By | 112,000 | = | $ 307,200 | |
Direct Labor | $ 1.98 | "X" By | 112,000 | = | $ 222,144 | |
Variable Overhead | $ 1.69 | "X" By | 112,000 | = | $ 189,600 | |
Fixed Manufacturing Overhead | $ 7.60 | "X" By | 112,000 | = | $ 851,400 | |
Total Cost | = | $ 1,570,344 | ||||
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