Question

St. Kilda Enterprises produces parts for the electronics industry. The production manager and cost analyst reviewed the accounts for the previous month and have provided an estimated breakdown of the fixed and variable portions of manufacturing overhead.

	Fixed				Variable				Total
Indirect materials	$	3,200			$	8,200			$	11,400
Indirect labor		2,100				16,100				18,200
Supervision		9,200				3,100				12,300
Depreciation		36,200				4,200				40,400
Maintenance		16,200				21,200				37,400
Total	$	66,900			$	52,800			$	119,700

Direct materials for the month amounted to $98,500. Direct labor for the month was $193,500. During the month, 12,500 units were produced.

Required:

a. No changes are expected in these cost relations next month. The firm has budgeted production of 16,250 units. Provide an estimate for total production cost for next month.
b. Determine the cost per unit of production for the previous month and the next month.

Answer 1

A)

particulars	fixed costs($)	variable costs($)	total($)
direct material		128050	128050
direct labour		251550	251550
indirect material	3200	10660	13860
indirect labour	2100	20930	23030
supervision	9200	4030	13230
depreciation	36200	5460	41660
maintanance	16200	27560	43760
TOTAL	66900	448240	515140

note:-

1) fixed costs wil not change in accordance with production quantity.

2) variabe costs wil change in accordance with production.hence it can be calculated by propotionatly.

example of variable cost calculation:-variable supervision costs=3100/12500 x 16250=$4030.

similarly all variable cost can be calculate.

B)

particulars	TOTAL COST FOR PREVIOUS MONTH	TOTAL COST FOR CURRENT MONTH
total cost of production(A)	411700	515140
total units produced(B)	12500	16250
cost per unit(A/B)	32.936	31.7

total cost of production is the sum of all fixed and variable costs including direct material and labour costs.