Question

Problem Information:

McDees Corporation’s relevant range of production is 10,000 – 15,000 units. Average per unit costs when producing 12,000 units is:

• Direct Materials                                                             $6.00
• Direct Labor                                                                   $8.00
• Fixed MOH                                                                      $3.00
• Fixed Selling and Administrative expense               $4.00
• Variable MOH                                                                $5.00
• Variable Selling and Administrative expense         $2.00

For each of the following questions show calculations to arrive at your answer.

1.            Total manufacturing costs to produce 12,000 units is:

2.            Total costs to produce and sell 12,000 units is:

3.            If McDees sold all 12,000 units at a price of $35 each, McDees contribution margin would be:

4.            If instead of 12,000 units, McDees manufactured 14,000 units, the total manufacturing costs would be:

5.            If instead of 12,000 units, McDees manufactured 14,000 units, the total costs to produce and sell 14,000 units is:

Answer 1

1.

total manufacturing costs=direct material costs + direct labour costs + fixed MOH + variable MOH

total manufacturing costs=($6*12000)+($8*12000)+($3*12000)+($5*12000)=$264000

2

.Total costs to produce and sell=total manufacturing costs + total non manufacturing costs

total non manufacturing costs=Fixed Selling and Administrative expense + Variable Selling and Administrative expense

total non manufacturing costs=($4*12000)+($2*12000)=$72000

Total costs to produce and sell=$264000+$72000=$336000

3.

contribution margin=sales revenue - total variable costs of sales

sales revenue=12000*$35=$420000

total variable costs of sales=direct material costs + direct labour costs + variable MOH

total variable costs of sales=($6*12000)+($8*12000)+($5*12000)=$228000

contribution margin=$420000-$228000=$192000

4.

total manufacturing costs=direct material costs + direct labour costs + fixed MOH + variable MOH

total manufacturing costs=($6*14000)+($8*14000)+($2.5714*14000)+($5*14000)=$302000

fixed MOH for a range of 10000 to 15000 units is $36000 fixed costs will be same for two levels of outputs but fixed cost per unit will be different

for 12000 units fixed MOH is $36000 and fixed MOH cost per unit is $3($36000/12000)

for 14000 units fixed MOH is $36000 and fixed MOH cost per unit is $2.5714($36000/14000)

($3*12000)=($2.5714*14000)

figures are rounded

5.

Total costs to produce and sell=total manufacturing costs + total non manufacturing costs

total non manufacturing costs=Fixed Selling and Administrative expense + Variable Selling and Administrative expense

total non manufacturing costs=($3.4286*14000)+($2*14000)=$76000

fixed Selling and Administrative expense  for a range of 10000 to 15000 units is $48000 fixed costs will be same for two levels of outputs but fixed cost per unit will be different

for 12000 units fixed Selling and Administrative expense  is $48000 and fixed Selling and Administrative expense cost per unit is $4($48000/12000)

for 14000 units fixed Selling and Administrative expense is $48000 and fixed Selling and Administrative expense cost per unit is $3.4286($48000/14000)

Total costs to produce and sell=$302000+$76000=$378000

figures are rounded