AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
275) Saxbury Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows:
Average Cost per Unit
Direct materials
$5.30
Direct labor
$3.65
Variable manufacturing overhead
$1.50
Fixed manufacturing overhead
$3.90
Fixed selling expense
$0.75
Fixed administrative expense
$0.60
Sales commissions
$0.50
Variable administrative expense
$0.50
Required:
a. For financial reporting purposes, what is the total amount of product costs incurred to make 5,000 units?
b. For financial reporting purposes, what is the total amount of period costs incurred to sell 5,000 units?
c. If 6,000 units are sold, what is the variable cost per unit sold?
d. If 6,000 units are sold, what is the total amount of variable costs related to the units sold?
e. If 6,000 units are produced, what is the average fixed manufacturing cost per unit produced?
f. If 6,000 units are produced, what is the total amount of fixed manufacturing cost incurred?
g. If 6,000 units are produced, what is the total amount of manufacturing overhead cost incurred? What is this total amount expressed on a per unit basis?
h. If the selling price is $22.90 per unit, what is the contribution margin per unit sold?
i. If 4,000 units are produced, what is the total amount of direct manufacturing cost incurred?
j. If 4,000 units are produced, what is the total amount of indirect manufacturing cost incurred?
k. What incremental manufacturing cost will the company incur if it increases production from 5,000 to 5,001 units?
Answer:
a.
Direct materials
$5.30
Direct labor
3.65
Variable manufacturing overhead
1.50
Variable manufacturing cost per unit
$10.45
Total variable manufacturing cost
($10.45 per unit × 5,000 units produced)
$52,250
Total fixed manufacturing overhead cost
($3.90 per unit × 5,000 units produced)
19,500
Total product (manufacturing) cost
$71,750
b.
Sales commissions
$0.50
Variable administrative expense
0.50
Variable selling and administrative expense per unit
$1.00
Total variable selling and administrative expense
($1.00 per unit × 5,000 units sold)
$5,000
Total fixed selling and administrative expense
($0.75 per unit × 5,000 units + $0.60 per unit × 5,000 units)
6,750
Total period (nonmanufacturing) cost
$11,750
c.
Direct materials
$5.30
Direct labor
3.65
Variable manufacturing overhead
1.50
Sales commissions
0.50
Variable administrative expense
0.50
Variable cost per unit sold
$11.45
d.
Variable cost per unit sold (a)
$11.45
Number of units sold (b)
6,000
Total variable costs (a) × (b)
$68,700
e.
Total fixed manufacturing overhead cost
($3.90 per unit × 5,000 units*) (a)
$19,500
Number of units produced (b)
6,000
Average fixed manufacturing cost per unit produced
(a) ÷ (b)
$3.25
*The average fixed manufacturing overhead cost per unit was determined by dividing the total fixed manufacturing overhead cost by 5,000 units.
f.
Fixed manufacturing overhead per unit
$3.90
Number of units produced
5,000
Total fixed manufacturing overhead cost
$19,500
g.
Total variable manufacturing overhead cost
($1.50 per unit × 6,000 units)
$9,000
Total fixed manufacturing overhead cost
($3.90 per unit × 5,000 units*)
19,500