Accy

In: Business and Management

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CHAPTER 2
AN INTRODUCTION TO COST TERMS AND PURPOSES

2-16 (15 min.) Computing and interpreting manufacturing unit costs.

1. (in millions)

Supreme Deluxe Regular Total

Direct material cost $ 84.00 $ 54.00 $ 62.00 $200.00 Direct manuf. labor costs 14.00 28.00 8.00 50.00 Indirect manuf. costs 42.00 84.00 24.00 150.00 Total manuf. costs $140.00 $166.00 $ 94.00 $400.00 Fixed costs allocated at a rate of $20M[pic]$50M (direct mfg. labor) equal to $0.40 per dir. manuf. labor dollar (0.40 [pic] $14; 28; 8) 5.60 11.20 3.20 20.00 Variable costs $134.40 $154.80 $ 90.80 $380.00 Units produced (millions) 80 120 100 Cost per unit (Total manuf. costs ÷ units produced) $1.7500 $1.3833 $0.9400 Variable manuf. cost per unit (Variable manuf. costs [pic]Units produced) $1.6800 $1.2900 $0.9080

(in millions)

Supreme Deluxe Regular Total

2. Based on total manuf. cost per unit ($1.75 [pic]120; $1.3833 [pic]160; $0.94 [pic]180) $210.00 $221.33 $169.20 $600.53 Correct total manuf. costs based on variable manuf. costs plus fixed costs equal Variable costs ($1.68 [pic]120; $201.60 $206.40 $163.44 $571.44 $1.29 [pic]160; $0.908 [pic]180) Fixed costs 20.00 Total costs $591.44

The total manufacturing cost per unit in requirement 1 includes $20 million of indirect manufacturing costs that are fixed irrespective of changes in the volume of output per month, while the remaining variable indirect manufacturing costs change with the production volume. Given the unit volume changes for August 2008, the use of total manufacturing cost per unit from the past month at a different unit volume level (both in aggregate and…...

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