Average Cost per Unit
Direct materials
$5.75
Direct labor
$3.00
Variable manufacturing overhead
$1.60
Fixed manufacturing overhead
$4.50
Fixed selling expense
$0.75
Fixed administrative expense
$0.60
Sales commissions
$1.50
Variable administrative expense
$0.55
Required:
a. For financial reporting purposes, what is the total amount of product costs incurred to make 6,000 units?
b. For financial reporting purposes, what is the total amount of period costs incurred to sell 6,000 units?
c. If 5,000 units are sold, what is the total amount of variable costs related to the units sold?
d. If the selling price is $19.10 per unit, what is the contribution margin per unit sold?
e. What incremental manufacturing cost will the company incur if it increases production from 6,000 to 6,001 units?
Answer:
a.
Direct materials
$5.75
Direct labor
3.00
Variable manufacturing overhead
1.60
Variable manufacturing cost per unit
$10.35
Total variable manufacturing cost
($10.35 per unit × 6,000 units produced)
$62,100
Total fixed manufacturing overhead cost
($4.50 per unit × 6,000 units produced)
27,000
Total product (manufacturing) cost
$89,100
b.
Sales commissions
$1.50
Variable administrative expense
0.55
Variable selling and administrative expense per unit
$2.05
Total variable selling and administrative expense
($2.05 per unit × 6,000 units sold)
$12,300
Total fixed selling and administrative expense
($0.75 per unit × 6,000 units + $0.60 per unit × 6,000 units)
8,100
Total period (nonmanufacturing) cost
$20,400
c.
Variable cost per unit sold (a)
$12.40
Number of units sold (b)
5,000
Total variable costs (a) × (b)
$62,000
d.
Selling price per unit
$19.10
Direct materials
$5.75
Direct labor
3.00
Variable manufacturing overhead
1.60
Sales commissions
1.50
Variable administrative expense
0.55
Variable cost per unit sold
12.40
Contribution margin per unit
$6.70
e.
Direct materials
$5.75
Direct labor
3.00
Variable manufacturing overhead
1.60
Incremental manufacturing cost
$10.35
Difficulty: 1 Easy
Topic: Cost Classifications for Preparing Financial Statements; Cost Classifications for Predicting Cost Behavior; Cost Classifications for Decision Making; Using Different Cost Classifications for Different Purposes
Learning Objective: 01-03 Understand cost classifications used to prepare financial statements: product costs and period costs.; 01-04 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs.; 01-05 Understand cost classifications used in making decisions: differential costs, sunk costs, and opportunity costs.; 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
290) A number of costs and measures of activity are listed below.
Cost Description
Possible Measure of Activity
1.
Salary of production manager at a surfboard manufacturer
Surfboards produced
2.
Cost of solder used in making computers
Computers produced
3.
Cost of dough used at a pizza shop
Pizzas cooked
4.
Janitorial wages at a surfboard manufacturer
Surfboards produced
5.
Salary of the controller at a hospital