The accounting records for Portland Products report the
following manufacturing costs for the past year.
Direct materials | $ | 340,000 | |
Direct labor | 261,000 | ||
Variable overhead | 230,000 | ||
Production was 150,000 units. Fixed manufacturing overhead was $820,000.
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 120,000 units of product this year.
b. Determine the costs per unit for last year and
for this year.
Cost Per Unit Last Year?
Cost Per Unit This Year?
Part A
Production unit 120000
Material cost per unit = 340000/150000 = 2.27
Direct labour cost per unit = 261000/150000 = 1.74
Variable overhead unit = 230000/150000 = 1.53
Fixed cost per unit = 820000/150000 = 5.47
Material cost increment 20% = 2.27 + 0.45 = 2.72
Labour cost increment 4% = 1.74 + 0.069 = 1.81
Fixed overhead increment 10% = 820000 + 82000 = 902000
Fixed overhead per unit = 902000/120000 = 7.52
Total cost per unit = 2.72 + 1.81 + 1.53 = 6.06
120000 * 6.06 = 727200
Total cost estimate = 727200 + 902000 = 1629200
Part B
Last year cost per unit = 2.27 + 1.74 + 1.53 + 5.47 = 11.01
This year cost per unit = 2.72 + 1.81 + 1.53 + 7.52 = 13.58
The accounting records for Portland Products report the following manufacturing costs for the past year. Direct...
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