Question

Larcker Manufacturing's cost accountant has provided you with the following information for January operations: A Direct materials Fixed manufacturing overhead costs Sales price Variable manufacturing overhead Direct labor Fixed marketing and administrative costs Units produced and sold Variable marketing and administrative costs $ 36 per unit 235.000 200 per unit 18 per unit 34 per unit $ 200,000 5,000 7 per unit Required: a. Determine the variable cost per unit. Variable cost per unit b. Determine the variable manufacturing cost per unit. Variable manufacturing cost per unit c. Determine the full absorption cost per unit. (Round your answer to 2 decimal places.) Full absorption cost per unit

Answer 1

Solution

Larcker Manufacturing

1. Determination of the variable cost per unit:

Variable cost per unit –

Direct materials          $36

Direct labor                 $34

Variable MOH            $18

Variable marketing and admn costs   $7

Total variable cost per unit     $95

2. Determination of the variable manufacturing cost per unit:

Variable manufacturing cost per unit –

Direct materials          $36

Direct labor                 $34

Variable MOH            $18

Total variable manufacturing cost per unit    $88

3. Determination of the full absorption cost:

Full absorption cost includes all direct costs incurred for production such as direct materials, direct labor and variable manufacturing overhead as well as fixed manufacturing overhead cost.

Full absorption cost –

Cost of production –

Direct materials          $180,000

Direct labor                 $170,000

Variable MOH            $90,000

Fixed MOH                 $235,000

Full absorption cost    $675,000

Computations:

Direct materials cost = $34 x 5,000 units produced = $180,000

Direct labor cost = $36 x 5,000 units = $170,000

Variable MOH = $18 x 5,000 = $90,000

4. Determination of full cost per unit:

Full cost per unit = full absorption cost/number of units produced

Full absorption cost = $675,000

Units produced = 5,000

Full cost per unit = $675,000/5,000 = $135

5. Profit margin per unit:

Profit margin per unit = net profit/number of units sold

Net profit = sales – total costs

Sales = sales price x unit sold

= $200 x 5,000 = $1,000,000

Total costs –

Full absorption cost = $675,000

Marketing and administration costs –

Variable $7 x 5,000 = $35,000

Fixed marketing          $200,000

Total                            $235,000

Total costs = 675,000 + 235,000 = $910,000

Net profit = 1,000,000 – 910,000 = $90,000

Net profit per unit = $90,000/5,000 = $18

6. Determination of the gross margin per unit:

Gross margin per unit = gross margin/number of units sold

Gross margin – sales revenue – full absorption cost

Sales revenue = $1,000,000

Full absorption cost = $675,000

Gross margin = $1,000,000 – 675,000 = $325,000

Gross margin per unit = $325,000/5,000 = $65

Gross margin per unit = $65

7. Determination of the contribution margin per unit:

Contribution margin per unit = contribution margin/units sold

Contribution margin = sales revenue – total variable costs

Sales revenue = $1,000,000

Total variable costs –

Direct materials = $180,000

Direct labor = $170,000

Variable MOH = $90,000

Variable Marketing costs = $35,000

Total variable costs = $475,000

Contribution Margin = 1,000,000 – 475,000 = $525,000

Contribution margin per unit = $525,000/5,000 = $105

Contribution margin per unit = $105