Question

In: Accounting

Find estimated total cost and cost per unit of each product

Hannah Ortega is considering expanding her business. She plans to hire a salesperson to cover trade shows. Because of compensation, travel expenses, and booth rental, fixed costs for a trade show are expected to be $7,500. The booth will be open 30 hours during the trade show. Ms. Ortega also plans to add a new product line, ProOffice, which will cost $150 per package. She will continue to sell the existing product, EZRecords, which costs $100 per package. Ms. Ortega believes that the salesperson will spend approximately 20 hours selling EZRecords and 10 hours marketing ProOffice.

1) Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 80 units of EZRecords and 50 units of ProOffice. (Round "Cost per unit" to 2 decimal places.)

2) Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 200 units of EZRecords and 100 units of ProOffice.

Expert Solution

a) Total Cost = Fixed Cost + Variable Cost

Fixed Cost = $7500

Variable Cost = cost of making a unit of output × number of units produced.

Variable Cost of EzRecords products = $100 × 80 = $8000

Variable Cost of proOffice products = $150 × 50 = $7500

Fixed Cost for EzRecords = (20/30) × 7500 = $5000

Fixed Cost for ProOffice = (10/30) × 7500 = $2500

Variable cost for EzRecords = $8000

Variable cost for ProOffice = $7500

Total cost for EzRecords = Fixed Cost + Variable Cost = $5000 + $8000 = $13000

Total Cost for ProOffice = $2500 + $7500 = $10000

Cost per unit for EzRecords = (total cost of production)/(total units produced) = 13000/(80) = $162.50

Cost per unit of ProOffice = 10000/50 = $200.00

b) Total Cost = Fixed Cost + Variable Cost

Fixed Cost = $7500

Variable Cost = cost of making a unit of output × number of units produced.

Variable Cost of EzRecords products = $100 × 200 = $20000

Variable Cost of proOffice products = $150 × 100 = $15000

Fixed Cost for EzRecords = (20/30) × 7500 = $5000

Fixed Cost for ProOffice = (10/30) × 7500 = $2500

Variable cost for EzRecords = $20000

Variable cost for ProOffice = $15000

Total cost for EzRecords = Fixed Cost + Variable Cost = $5000 + $20000 = $25000

Total Cost for ProOffice = $2500 + $15000 = $17500

Cost per unit for EzRecords = (total cost of production)/(total units produced) = 25000/(200) = $125.00

Cost per unit of ProOffice = 17500/100 = $175.00

Answer:

a) Total Cost for EzRecords = $13000

Cost per unit of EzRecords = $162.50

Total Cost for ProOffice = $10000

cost per unit of ProOffice = $200.00

b) Total Cost for EzRecords = $25000

Cost per unit of EzRecords = $125.00

Total Cost for ProOffice = $17500

cost per unit of ProOffice = $175.00

Christopher Mann answered 3 years ago

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