Question

MassachusettsMassachusetts

Office Products​ (MOP) produces three different paper products at its Vaasa lumber​ plant: Supreme,​ Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following​ three-part classification for its manufacturing​ costs: direct​ materials, direct manufacturing​ labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July

20172017

are

$ 200$200

million

​($ 24$24

million of which are​ fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data​ (in millions) for July

20172017

are as​ follows

	Supreme	Deluxe	Regular
Direct material costs	$83	$59	$67
Direct manufacturing labor costs	$17	$24	$39
Manufacturing overhead costs	$48	$85	$67
Units produced	100	120	110

Using the formula you determined​ above, calculate the​ company's total manufacturing cost per unit for each type of product produced in July

20172017.

​(Round your answers to the nearest​ cent.)

	Supreme	Deluxe	Regular
Total manufacturing cost per unit produced in July

Requirement 2. Suppose​ that, in August

20172017​,

production was

140140

million units of​ Supreme,

160160

million units of​ Deluxe, and

190190

million units of Regular. Why might the July

20172017

information on manufacturing cost per unit be misleading when predicting total manufacturing costs in August

20172017​?

During July

20172017​,

the company incurred

$ 200$200

million of manufacturing overhead​ costs, which includes a

▼

$ 24 million fixed$24 million fixed

$ 24 million variable$24 million variable

$ 80 million variable$80 million variable

$ 200 million fixed$200 million fixed

cost component that

▼

will fluctuate

will not fluctuate

with changes in monthly production volume. This​amount, which

▼

has

has not

been allocated to the total manufacturing costs of producing each​ product,

▼

affects

has no effect on

the total manufacturing cost per unit amounts as calculated in requirement 1.

Given the production volume

▼

decrease

increase

in August

20172017​,

using the total manufacturing cost per unit amounts calculated for July

20172017

will result in

▼

an accurate estimation

an overestimation

an underestimation

of total manufacturing costs for August.

Answer 1

Amount expressed in millions
	Supreme	Deluxe	Regular	Totals
Direct material costs	$                 83	$                 59	$                 67	$               209
Direct manufacturing labor costs	$                 17	$                 24	$                 39	$                 80
Manufacturing overhead costs	$                 48	$                 85	$                 67	$               200
Total Manufacture cost	$               148	$               168	$               173	$               489
Divided by: Units produced (in millions)	100	120	110
Cost per unit	$      1.48000	$      1.40000	$      1.57273
Cost per unit (rounded)	$             1.48	$             1.40	$             1.57
Fixed manufacturing overhead				$                 24
Divided by: Manufacturing overhead costs				$               200
Portion of fixed overhead to total Manufacturing overhead costs				12%
Fixed overhead (Manufacturing overhead costs * 12%)	$             5.76	$           10.20	$             8.04	$           24.00
Total Manufacture cost	$         148.00	$         168.00	$         173.00	$         489.00
Less: Fixed overhead cost	$             5.76	$           10.20	$             8.04	$           24.00
Variable manufacturing overhead	$         142.24	$         157.80	$         164.96	$         465.00
Divided by: Units produced (in millions)	100	120	110
Variable Cost per unit	$      1.42240	$      1.31500	$      1.49964

	Supreme	Deluxe	Regular	Totals
Cost per unit	$      1.48000	$      1.40000	$      1.57273
Multiply: Units produced in august	140	160	190
Total manufacture cost based on (cost per unit)	$         207.20	$         224.00	$         298.82	$         730.02
Variable Cost per unit	$      1.42240	$      1.31500	$      1.49964
Multiply: Units produced in august	140	160	190
Actual Variable manufacture overhead	$         199.14	$         210.40	$         284.93	$         694.47
Actual fixed manufacture overhead				$           24.00
Actual Manufacture cost				$         718.47
During July 2017, the company incurred $ 200 million of manufacturing overhead​ costs, which includes a			$ 24 million fixed
cost component that			will not fluctuate
with changes in monthly production volume. This​ amount, which			has
been allocated to the total manufacturing costs of producing each​ product,			affects
the total manufacturing cost per unit amounts as calculated in requirement 1. Given the production volume			increase
in August 2017, using the total manufacturing cost per unit amounts calculated for July 2017 will result in			an overestimation
of total manufacturing costs for August.