Cost Formulas
Shorewood Manufacturing produces a single product requiring the following directmaterial and direct labor:
| Cost per Unit of Input | Required Amount per Unit of Product | |
|---|---|---|
| Material A | $24 / pound | 10 ounces |
| Material B | $15 / pound | 8 ounces |
| Material C | $60 / gallon | 0.3 gallon |
| Cutting labor | $27 / hour | 30 minutes |
| Shaping labor | $33 / hour | 15 minutes |
| Finishing labor | $36 / hour | $45 minutes |
Manufacturing overhead consists of indirect material, $0.60 per unit of product; indirect labor, $1,000 per month plus $0.70 per unit of product; factory maintenance, $14,000 per year plus $0.55 per unit of product; factory depreciation, $15,000 per year; and annual factory property taxes, $8,000. Selling and administrative expenses include the salaries of a sales manager, $30,000 per year; an office manager, $18,000 per year; and two salespersons, each of whom is paid a base salary of $11,000 per year and a commission of $3 per unit sold. Advertising and promotion of the product are done through a year-round media package program costing $1,000 per week.
a. Analyze all cost and expense factors to determine a general formula (based on units of production) for total cost.
Round variable cost per unit answers to two decimal places, if applicable.
| Total Fixed Costs | Variable Cost per Unit | |||
|---|---|---|---|---|
| Material A | $Answer | $Answer | ||
| Material B | Answer | Answer | ||
| Material C | Answer | Answer | ||
| Cutting labor | Answer | Answer | ||
| Shaping labor | Answer | Answer | ||
| Finishing labor | Answer | Answer | ||
| Manufacturing overhead: | ||||
| Indirect material | Answer | Answer | ||
| Indirect labor | Answer | Answer | ||
| Factory maintenance | Answer | Answer | ||
| Factory depreciation | Answer | Answer | ||
| Factory property taxes | Answer | Answer | ||
| Selling and administration expenses | ||||
| Sales administration salaries | Answer | Answer | ||
| Office administration salaries | Answer | Answer | ||
| Sales salaries and commissions | Answer | Answer | ||
| Advertising and promotion | Answer | Answer | ||
| Total component cost | $Answer | $Answer |
b. Assuming a relevant range of 10,000 to 20,000 units, what is the estimated unit cost for producing and selling 10,000 units? 20,000 units?
Round answers to two decimal places.
Estimated per unit cost for 10,000 units $Answer
Estimated per unit cost for 20,000 units $Answer
c. If 15,000 units are produced and sold in a year, what selling price results in a net income before taxes of $60,000?
Round answers to two decimal places, if needed.
$Answer
Solution a:
| Particulars | Total Fixed costs | Variable cost per unit |
| Material A | $0.00 | $15.00 |
| Material B | $0.00 | $7.50 |
| Material C | $0.00 | $18.00 |
| Cutting labor | $0.00 | $13.50 |
| Shaping Labor | $0.00 | $8.25 |
| Finishing Labor | $0.00 | $27.00 |
| Manufacturing overhead: | ||
| Indirect material | $0.60 | |
| Indirect labor | $12,000.00 | $0.70 |
| Factory maintenance | $14,000.00 | $0.55 |
| Factory depreciation | $15,000.00 | $0.00 |
| Factory property taxes | $8,000.00 | $0.00 |
| Selling and administrative expenses: | ||
| Sales and administration salaries | $30,000.00 | $0.00 |
| Office administration salaries | $18,000.00 | $0.00 |
| Sales salaries and commission | $22,000.00 | $3.00 |
| Advertising and promotion | $52,000.00 | $0.00 |
| Total component cost | $171,000.00 | $94.10 |
Solution b:
Estimated per unit cost for 10000 units = ($171,000 + 10000*$94.10) / 10000 = $111.20 per unit
Estimated per unit cost for 20000 units = ($171,000 + 20000*$94.10) / 20000 = $102.65 per unit
Solution c:
If 15000 units sold, required revenue to earn net income before taxes $60,000 = ($171,000 + 15000*$94.10 + $60,000) / 15000
= $109.50
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