Question

Benoit, Inc., a manufacturer of plastic​ products, reports the following manufacturing costs and account analysis classification for the year ended December​ 31, 2014.

Account	Classification	Amount
Direct materials	All variable	$290,000
Direct manufacturing labor	All variable	181,250
Power	All variable	36,250
Supervision labor	20% variable	43,500
Materials-handling labor	50% variable	72,500
Maintenance labor	50% variable	58,000
Depreciation	0% variable	110,000
Rent, property taxes, and administration	0% variable	100,000

Benoit​, Inc., produced 72,500 units of product in 2014. Benoit​'s management is estimating costs for 2015 on the basis of 2014 numbers. The following additional information is available for 2015.

a.	Direct materials prices in 2015 are expected to increase by 44​% compared with 2014.
b.	Under the terms of the labor​ contract, direct manufacturing labor wage rates are expected to increase by 12​% in 2015 compared with 2014.
c.	Power rates and wage rates for​ supervision, materials​ handling, and maintenance are not expected to change from 2014 to 2015.
d.	Depreciation costs are expected to increase by 10​%, and​ rent, property​ taxes, and administration costs are expected to increase by 10​%.
e.	Benoit expects to manufacture and sell 77,500 units in 2015.

1.	Prepare a schedule of​ variable, fixed, and total manufacturing costs for each account category in 2015. Estimate total manufacturing costs for 2015.
2.	Calculate Benoit​'s total manufacturing cost per unit in 2014​, and estimate total manufacturing cost per unit in 2015.
3.	How can you obtain better estimates of fixed and variable​ costs? Why would these better estimates be useful to Benoit​?

Answer 1