Question

-low analysis P6-3A. Cost Formulas Longboat Manufacturing produces a single product requiring the following direct LO2, 3,6 materials and direct labor: MIM lowing er each Description Cost per Unit of Required Amount per Input Material A Unit of Product Material B $ pound 20 ounces Material C 7/pound 4 ounces Cutting labor 25/gallon 0.4 gallon Shaping labor 12/hour 45 minutes Finishing labor 15/hour 15 minutes 14/hour 75 minutes Manufacturing overhead consists of indirect materials, 50.60 per unit of product; indirect labor, $1,000 per month plus $0.75 per unit of product; factory maintenance, $17.000 per year plus $0.65 per unit of product; factory depreciation. $18,000 per year, and annual factory property taxes, $10,000. Selling and administrative expenses include the salaries of a sales manager, $40,000 per year, an office manager, $22,000 per year, and two salespersons, each of whom is paid a base salary of $15,000 per year and a commission of S4 per unit sold. Advertising and promotion of the product are done through a year-round media package program costing $1,500 per week. Required a. Analyze all cost and expense factors to determine a general formula (based on units of produc- tion) for total cost. b. Assuming a relevant range of 10,000 to 30,000 units, what is the estimated unit cost for produc- ing and selling 10,000 units? 25,000 units? Explain the variation in unit cost at the two levels of production If 22,000 units are produced and sold in a year, what selling price results in a net income before income tax of $75,000? wanufactur. ons C LO2. 3

Answer 1

Solution a:

Particulars	Total Fixed costs	Variable cost per unit
Material A	$0.00	$11.25
Material B	$0.00	$1.75
Material C	$0.00	$10.00
Cutting labor	$0.00	$9.00
Shaping Labor	$0.00	$3.75
Finishing Labor	$0.00	$17.50
Manufacturing overhead:
Indirect material		$0.60
Indirect labor	$12,000.00	$0.75
Factory maintenance	$17,000.00	$0.65
Factory depreciation	$18,000.00	$0.00
Factory property taxes	$10,000.00	$0.00
Selling and administrative expenses:
Sales and administration salaries	$40,000.00	$0.00
Office administration salaries	$22,000.00	$0.00
Sales salaries and commission	$30,000.00	$4.00
Advertising and promotion	$78,000.00	$0.00
Total component cost	$227,000.00	$59.25

Solution b:

Estimated per unit cost for 10000 units = ($227,000 + 10000*$59.25) / 10000 = $81.95 per unit

Estimated per unit cost for 25000 units = ($227,000 + 25000*$59.25) / 25000 = $68.33 per unit

Solution c:

If 22000 units sold, required revenue to earn net income before taxes $75,000 = ($227,000 + 22000*$59.25+ $75,000) / 22000

= $72.98