Question

Colonial Manufacturing produces a single product requiring the following direct material and direct labor:

	Cost per Unit of Input	Required Amount per Unit of Product
Material A	$9 / pound	24 ounces
Material B	$6 / pound	12 ounces
Material C	$12 / gallon	0.5 gallon
Cutting labor	$10 / hour	45 minutes
Shaping labor	$12 / hour	15 minutes
Finishing labor	$11 / hour	30 minutes

Manufacturing overhead consists of indirect materials, $0.80 per unit of product; indirect labor, $10,000 per year plus $1.20 per unit of product; factory maintenance, $1,000 per month plus $0.60 per unit of product; factory depreciation, $22,000 per year; and annual factory property taxes, $20,000. Selling and administrative expenses include the salaries of a sales manager, $30,000 per year, an office manager, $18,000 per year, and two salespersons, each of whom is paid a base salary of $12,000 per year and a commission of $4 per unit sold. Advertising and promotion of the product are done through a year-round media package program costing $600 per week.

a. Analyze all cost and expense factors to determine a general formula (based on units of production) for total cost.

Round variable cost per unit answers to two decimal places, if applicable.

		Total Fixed Costs		Variable Cost per Unit
Material A		$Answer		$Answer
Material B		Answer		Answer
Material C		Answer		Answer
Cutting labor		Answer		Answer
Shaping labor		Answer		Answer
Finishing labor		Answer		Answer
Manufacturing overhead:
Indirect material		Answer		Answer
Indirect labor		Answer		Answer
Factory maintenance		Answer		Answer
Factory depreciation		Answer		Answer
Factory property taxes		Answer		Answer
Selling and administration expenses
Sales administration salaries		Answer		Answer
Office administration salaries		Answer		Answer
Sales salaries and commissions		Answer		Answer
Advertising and promotion		Answer		Answer
Total component cost		$Answer		$Answer

b. Assuming a relevant range of 20,000 to 40,000 units, what is the estimated unit cost for producing and selling 20,000 units? 40,000 units?

Round answers to two decimal places.

Estimated per unit cost for 20,000 units $Answer

Estimated per unit cost for 40,000 units $Answer

c. If 35,000 units are produced and sold in a year, what selling price results in a net income before taxes of $56,800?

Round answers to two decimal places, if needed.

$Answer

Answer 1

a.

	Total Fixed Costs	Variable Cost per Unit
Material A		13.5
Material B		4.5
Material C		6
Cutting Labor		7.5
Shaping Labor		3
Finishing labor		5.5
Manufacturing Overhead:
Indirect material		0.8
Indirect Labor	10000	1.20
Factory Maintenance	1000	0.60
Factory Depreciation	22000
Factory Property Taxes	20000
Selling and Administrative Expenses:
Sales Administration Salaries	30000
Office Adminidtration Salaries	18000
Sales Salaries and Commissions	24000	4
Advertising and Promotion	31200
Total Component Cost	156200	42.6

b.20,000 units = 42.6+156200/20000 = 50.41

40,000 units = 42.6+156200/40000 = 46.505

c. Net income before Tax = 56800

Add: Fixed Costs 156200

Desired Contribution = 213000
No. of Units = 35000

Contribution per Unit = 6.09

Variable cost per unit 42.6

Selling price = 48.68