Question

Salem Corporation's relevant range of activity is 5,000 units to 8,000 units. When it produces and sells 6,000 units, its average costs per unit are as follows:

		Average Cost per Unit
	Direct materials	$6.55
	Direct labor	$4.00
	Variable manufacturing overhead	$2.30
	Fixed manufacturing overhead	$5.20
	Fixed selling expense	$1.35
	Fixed administrative expense	$1.40
	Sales commissions	$2.30
	Variable administrative expense	$1.45

1- For financial reporting purposes, what is the total amount of product costs incurred to make 6,000 units?

2- For financial reporting purposes, what is the total amount of period costs incurred to sell 6,000 units?

3- What is the variable manufacturing cost per unit?

4- What is the prime cost per unit?

5- If 6,000 units are sold, what is the fixed cost per unit?

Answer 1

Answer 1.

Variable manufacturing cost per unit = Direct materials + Direct labor + Variable manufacturing overhead
Variable manufacturing cost per unit = $6.55 + $4.00 + $2.30
Variable manufacturing cost per unit = $12.85

Fixed manufacturing cost per unit = Fixed manufacturing overhead
Fixed manufacturing cost per unit = $5.20

Fixed manufacturing cost = Fixed manufacturing cost per unit * Number of units produced
Fixed manufacturing cost = $5.20 * 6,000
Fixed manufacturing cost = $31,200

Total product cost = Variable manufacturing cost per unit * Number of units produced + Fixed manufacturing cost
Total product cost = $12.85 * 6,000 + $31,200
Total product cost = $108,300

Answer 2.

Variable selling and administrative expenses per unit = Sales commissions + Variable administrative expense
Variable selling and administrative expenses per unit = $2.30 + $1.45
Variable selling and administrative expenses per unit = $3.75

Fixed selling and administrative expenses per unit = Fixed selling expense + Fixed administrative expense
Fixed selling and administrative expenses per unit = $1.35 + $1.40
Fixed selling and administrative expenses per unit = $2.75

Fixed selling and administrative expenses = Fixed selling and administrative expenses per unit * Number of units produced
Fixed selling and administrative expenses = $2.75 * 6,000
Fixed selling and administrative expenses = $16,500

Total period cost = Variable selling and administrative expenses per unit * Number of units produced + Fixed selling and administrative expenses
Total period cost = $3.75 * 6,000 + $16,500
Total period cost = $39,000

Answer 3.

Variable manufacturing cost per unit = Direct materials + Direct labor + Variable manufacturing overhead
Variable manufacturing cost per unit = $6.55 + $4.00 + $2.30
Variable manufacturing cost per unit = $12.85

Answer 4.

Prime cost per unit = Direct materials + Direct labor
Prime cost per unit = $6.55 + $4.00
Prime cost per unit = $10.55

Answer 5.

Total fixed costs = Fixed manufacturing cost + Fixed selling and administrative expenses
Total fixed costs = $31,200 + $16,500
Total fixed costs = $47,700

Fixed cost per unit = Total fixed costs / Number of units produced
Fixed cost per unit = $47,700 / 6,000
Fixed cost per unit = $7.95