Question

if we assume that there is a fixed manufacturing overhead of $50,000 and the variable manufacturing overhead is $10 per direct labor-hour, what is the estimated unit product cost?

The total direct labor hours are 2 hours and the number of units produced is 10,000. Direct materials 5 pounds, $2 per pound. Direct labor is 2 hours, $15 per hour. Manufacturing overhead 2 hours, $10 per hour.

Answer 1

Solution :

The formula for calculating the estimated unit product cost is

= Direct material cost per unit + Direct labor cost per unit + Variable Manufacturing overhead cost per unit + Fixed manufacturing overhead cost per unit

As per the information given in the question we have

a.Direct materials required to produce a single unit of product = 5 pounds

Cost per pound of direct materials = $ 2 per pound

Thus the Direct material cost per unit

= Direct materials required to produce a single unit of product * Cost per pound of direct materials

= 5 * $ 2 = $ 10

b.Direct labor hours required to produce a single unit of product = 2 direct labor hours

Cost per labor hour = $ 15 per labor hour

Thus the Direct labor cost per unit

= Direct labor hours required to produce a single unit of product * Cost per labor hour

= 2 * $ 15 = $ 30

c.The variable manufacturing overhead is $ 10 per direct labor-hour

Direct labor hours required to produce a single unit of product = 2 direct labor hours

Thus the variable manufacturing overhead cost per unit = $ 10 * 2

= $ 20

d. Fixed manufacturing overhead incurred = $50,000

The number of units produced = 10,000

Thus the fixed manufacturing overhead per unit = Fixed manufacturing overhead / number of units produced

= $ 50,000 / 10,000 = $ 5

Applying the above information in the formula we have the estimated unit product cost as

= $ 10 + $ 30 + $ 20 + $ 5

= $ 65

Thus the estimated unit product cost = $ 65