Question

Friday Night, Inc. manufactures high-quality 5-liter boxes of wine which it sells for $14 per box. Below is some information related to Friday Night's capacity and budgeted fixed manufacturing costs for 2019:

	Budgeted Fixed	Days of	Hours of
Denominator-Level	Manufacturing	Production	Production	Boxes
Capacity Concept	Overhead per Period	per Period	per Day	per Hour
Theoretical capacity	$4,000,000	362	22	300
Practical capacity	$4,000,000	310	16	250
Normal capacity	$4,000,000	310	16	175
Master budget capacity	$4,000,000	310	16	200

Production during 2019 was 990,000 boxes of wine, with 15,000 remaining in ending inventory at 12/31/19. Actual variable manufacturing costs were $1,762,200 (there are no variable cost variances). Actual fixed manufacturing overhead costs were $4,000,000, the same as budgeted. What is the total cost per unit (box of wine) when normal capacity is used?

5.01

b.

$5.81

c.

$3.45

d.

$6.39

Answer 1

Fixed Cost Absoprtion Rate = Total Budgeted Fixed Cost / Total Boxes Produced

= $4,000,000 / 868000

= $4.61

(Total Boxes Produced = 310 days * 16 hours * 175 boxes per hour = 868000 boxes)

Variable Cost per unit = Total Variable Cost / Units Produced

= $17,62,200 / 990000

= $1.78

Total Cost = $4.61 + $1.78

= $6.39

Option D is correct

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