he accounting records for Portland Products report the following
manufacturing costs for the past year.
Direct materials | $ | 320,000 | |
Direct labor | 260,000 | ||
Variable overhead | 239,000 | ||
Production was 190,000 units. Fixed manufacturing overhead was $724,000.
For the coming year, costs are expected to increase as follows:
direct materials costs by 20 percent, excluding any effect of
volume changes; direct labor by 4 percent; and fixed manufacturing
overhead by 10 percent. Variable manufacturing overhead per unit is
expected to remain the same.
Required:
a. Prepare a cost estimate for a volume level
of 152,000 units of product this year.
b. Determine the costs per unit for last year and
for this year.
At Production- 190,000 Units
Material cost per unit = 320000/190000 = 1.68
Direct labour cost per unit = 260000/190000 = 1.37
Variable overhead unit = 239000/190000 = 1.26
Fixed cost per unit = 724000/190000 = 3.81
Material cost increment 20% = 1.68 + 20% = 2.02
Labour cost increment 4% = 1.37 + 4% = 1.42
Fixed overhead increment 10% = 724000 + 10% = 796400
Fixed overhead per unit = 796400/152000 = 5.24
At Volume level 152,000 Units.
Total cost per unit =$ 2.02 + 1.42 + 1.26 = $4.70
152000 * $4.70= $714,400
Total cost estimate = $714,400 + $796,400 = $1,510,800
Part B
Cost per Unit = Material + Labor + Variable Overhead + Fixed Overhead.
Last year cost per unit = $1.68 + 1.37 + 1.26 + 3.81= $8.12
This year cost per unit = $2.02 + 1.42 + 1.26 + 5.24 = $9.94
If you have any doubts please comment on the answer.
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