Question

Eucalyptus Company has the following budgeted variable costs per unit produced:

Direct materials	$0.35
Direct labor	$0.28
Variable overhead:
Supplies	$0.04
Indirect labor	$0.09
Power	$0.03

Budgeted fixed overheads per quarter include rent of $25,000 and depreciation of $150,000.
Calculate the cost of production at the activity level of 2,200,000 units.

a.$1,913,000

b.$1,924,000

c.$1,865,000

d.$1,891,000

Answer 1

Total budgeted variable costs per unit = Direct materials+Direct labor+Variable overhead

= $0.35+$0.28+($0.04+$0.09+$0.03)

= $0.35+$0.28+$0.16 = $0.79

Cost of Production = Total Variable costs+Total Fixed costs

= (Units produced*Variable costs per unit)+(Rent+Depreciation)

= (2,200,000 units*$.79 per unit)+($25,000+$150,000)

= $1,738,000+$175,000 = $1,913,000

Therefore the cost of production at the activity level of 2,200,000 units is $1,913,000. Hence the correct option is a) $1,913,000.