In: Accounting
Baker Corporation has provided the following production and
average cost data for two levels of monthly production volume. The
company produces a single product.
Production volume | 1,190 | units | 4,690 | units | ||
Direct materials | $ | 32.80 | per unit | $ | 32.80 | per unit |
Direct labor | $ | 42.10 | per unit | $ | 42.10 | per unit |
Manufacturing overhead | $ | 67.00 | per unit | $ | 27.00 | per unit |
The best estimate of the total variable manufacturing cost per unit
is:
$32.80
$13.40
$88.30
$74.90
Answer:
Production Volume = 1,190 Units:
Manufacturing Overhead = $67.00 * 1,190
Manufacturing Overhead = $79,730
Production Volume =
4,690 Units:
Manufacturing Overhead = $27.00 * 4,690
Manufacturing Overhead = $126,630
As per High- Low method,
Variable Cost per Unit = (y2 – y1)/ (x2 – x1)
Total Manufacturing Overhead cost at the highest level of activity
(y2) = $126,630
Total Manufacturing Overhead cost at the lowest level of activity
(y1) = $79,730
Units at highest level of activity (x2) = 4,690 units
Units at lowest level of activity (x1) = 1,190 units
Variable Manufacturing Overhead cost per unit = ($126,630 -
$79,730) / (4,690 – 1,190)
Variable Manufacturing Overhead cost per unit = $46,900 /
3,500
Variable Manufacturing Overhead cost per unit = $13.40
Total Variable Manufacturing Cost = Direct Materials + Direct
Labor + Variable Manufacturing Overhead
Total Variable Manufacturing Cost per unit = $32.80 + $42.10 +
$13.40
Total Variable Manufacturing Cost per unit =
$88.30