Question

The accounting records for Portland Products report the following manufacturing costs for the past year:

Direct materials	$	320,000
Direct labor		261,000
Variable overhead		230,000

Production was 140,000 units. Fixed manufacturing overhead was $724,000.

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 112,000 units of product this year. (Do not round intermediate computations.)

COST ITEM    THIS YEARS COST
direct material ?
direct labor    ?
variable overhead ?
fixed overhead ?
total costs    ?

b. Determine the costs per unit for last year and for this year. (Round your answers to 2 decimal places.)
   COST PER UNIT
Last year    ?
This year ?

Answer 1

Solution:-

A)

Cost Item	This Year Cost	Solution / Explanation
direct material	307199.99	320000 / 140,000 + 20% x 112,000
direct labor	217151.99	261,000 / 140,000 + 4% x 112,000
variable overhead	183999.99	230,000 / 140,000 x 112,000
fixed overhead	796400	724,000 x 10 % + 724,000
total costs	1504751.97

B )

Year	Cost per unit	Solution / Explanation
Last year	10.96	= 320,000 + 261,000 + 230,000 + 724,000 = 1535000 = Total cost of last year / 140000 = 1535000 / 140000
This year	13.43	Total cost of this year / 112,000 = 1504751.97 / 112000