Question

The following data apply to the provision of psychological testing services:

    

Sales price per unit (1 unit = 1 test plus feedback to client)$300

Fixed costs (per month):   

Selling and administration 20,000

Production overhead (e.g., rent of testing facilities) 17,500

Variable costs (per test):   

Labor for oversight and feedback 165

Outsourced test analysis 17

Materials used in testing 7

Production overhead 12

Selling and administration (e.g., scheduling and billing) 14

Number of tests per month 2,000tests

Required:

Calculate the amount for each of the following (one unit = one test) if the number of tests is 2,000 per month. Also calculate if the number of tests decreases to 1,250 per month. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

		2000 tests	1250 tests
a	variable production cost per unit
b	variable cost per nuit
c	full cost per unit
d	full absorption cost per unit
e	prime costper unit
f	conversion cost per unit
g	contribution margin per unit
h	gross margin per unit

Answer 1

SOLUTION

a. Variable production cost per unit

	2,000 Tests	1,250 Tests
Labor for oversight and feedback	165	165
Outsourced test analysis	17	17
Materials used in testing	7	7
Production overhead	12	12
Total	201	201

b. Variable cost per unit

	2,000 Tests	1,250 Tests
Variable production per unit	201	201
Selling and administrative expense	14	14
Total	215	215

c. Full cost per unit

	2,000 Tests	1,250 Tests
Variable cost per unit	215	215
Fixed cost per unit [(20000+17500)/2,000],[(20000+17500)/1,250]	18.75	30
Total	233.75	245

d. Full absorption cost per unit

	2,000 Tests	1,250 Tests
Variable production per unit	201	201
Fixed cost per unit [(17500)/2,000],[(17500)/1,250]	8.75	14
Total	209.75	215

e. Prime cost per unit

	2,000 Tests	1,250 Tests
Labor for oversight and feedback	165	165
Outsourced test analysis	17	17
Materials used in testing	7	7
Total	189	189

f. Conversion cost per unit

	2,000 Tests	1,250 Tests
Labor for oversight and feedback	165	165
Outsourced test analysis	17	17
Variable production overhead	12	12
Fixed production overhead [(17500)/2,000],[(17500)/1,250]	8.75	14
Total	202.75	208

g. Contribution margin per unit

	2,000 Tests	1,250 Tests
Sales price per unit	300	300
Less: Variable cost per unit	215	215
Contribution margin per unit	85	85

h. Gross margin per unit

	2,000 Tests	1,250 Tests
Sales price per unit	300	300
Less: Full absorption cost	209.75	215
Gross margin per unit	90.25	85