Question

The Colin Division of Mochrie Company sells its product for $40 per unit. Variable costs per unit are: manufacturing, $13.10; and selling and administrative, $2. Fixed costs are: $280000 manufacturing overhead, and $60000 selling and administrative. There was no beginning inventory. Expected sales for next year are 40000 units. Ryan Stiles, the manager of the Colin Division, is under pressure to improve the performance of the Division. As he plans for next year, he has to decide whether to produce 40000 units or 60000 units. What would the manufacturing cost per unit be under variable costing for each alternative?

     40000 units         60000 units

$13.10                   $13.10

$15.10                   $15.10

$18.70                   $20.10

$20.10                   $18.70

Answer 1

Answer:

The Colin Division of Mochrie Company

Computation of Manufacturing cost per Unit using Variable costing approach

Particulars	For 40000 Units	For 60000 Units
Variable Manufacturing Overhead	$13.10	$13.10
Variable Selling & Administrative Cost
Fixed Manufacturing Cost
Fixed Selling & Administrative Cost
Manufacturing Cost Per Unit	$13.10	$13.10

Note:

1. Fixed Manufacturing cost is not to be considered under the Variable costing approach.

2. Both Fixed & variable selling & manufacturing overhead cost has not been included while computing the cost of manufacturing per unit under variable costing approach.