Question

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

Direct materials	$	310,000
Direct labor		268,000
Variable overhead		233,000

Production was 180,000 units. Fixed manufacturing overhead was $793,000.

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 144,000 units of product this year.
b. Determine the costs per unit for last year and for this year.

2. Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase 8 units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced.

Unit Produced (X)	Time Required to Produce the Xth Unit
1	6,000 hours
2	3,600 hours
4	2,160 hours
8	?
16	?

Required:

a. Compute the labor time required to produce 8 and 16 units.

b. Assume that labor time costs $60 per hour. Compare the cost of producing the 1st unit to the cost of producing the 16th unit. What is the percentage of the cost of the 16th unit to the cost of the 1st unit?

Answer 1