Question

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 50,000 units will be produced, with the following total costs:

Direct materials	$120,000
Direct labor	70,000
Variable overhead	35,000
Fixed overhead	220,000

Required:

If required, round your answers to the nearest cent.

1. Calculate the prime cost per unit.
$ per unit

2. Calculate the conversion cost per unit.
$ per unit

3. Calculate the total variable cost per unit.
$ per unit

4. Calculate the total product (manufacturing) cost per unit.
$ per unit

5. What if the number of units increased to 55,000 and all unit variable costs stayed the same? indicate the impact on the following costs.

a. Total direct materials    

b. Total direct labor    

c. Total variable overhead    

d. Total fixed overhead    

e. Unit prime cost    

f. Unit conversion cost    

What would the product cost per unit be in this case?
$ per unit

Answer 1

1 Prime cost per unit

Prime cost include direct costs , in this case direct material and direct labour.

Prime cost per unit = (120,000 + 70,000) / 50,000 = $3.8

Prime cost per unit is $3.8

2 Conversion cost per unit

Conversion cost is the cost used to convert direct material into finished goods. Direct material is not included in conversion cost, in this case conversion cost include direct labour, variable manufacturing overhead and fixed manufacturing overhead.

Conversion cost per unit

= (70,000 + 35,000 + 220,000) / 50,000 = $6.5

Conversion cost per unit is $6.5

3 Total variable cost per unit

Variable cost includes direct material, direct labour and variable overhead.

Total variable cost per unit

= (120,000 + 70,000 + 35,000) / 50,000 = $4.5

Total variable cost per unit is $4.5

4 Total product cost

Product cost includes direct material, direct labour, variable overhead and fixed overhead.

Total product cost per unit

= (120,000 + 70,000 + 35,000 + 220,000) / 50,000 = $8.9

Total product cost per unit is $8.9

5 a direct material cost per unit = 120,000 / 50,000 = $2.4

Total direct material cost

= 55,000 × 2.4 = $132,000

Total direct material cost is $132,000 if 55,000 units are produced.

b direct labour cost per unit = 70,000 / 50,000 = $1.4

Total direct labour cost = 55,000 × 1.4 = $77,000

Total direct labour cost is $77,000 if 55,000 units are produced.

c variable overhead per unit = 35,000 / 50,000 = $0.7

Total variable overhead = 55,000 × 0.7 = $38,500

d Total fixed cost

Total fixed cost do not vary with increase or decrease in production. It remain constant.

Total fixed cost remain $220,000

e unit prime cost = (120,000 + 70,000) / 50,000 = $3.8

Prime cost includes direct material and direct labour, these two are variable cost . Variable cost per unit is doesn't change with increase or decrease in production. It remain constant.

Unit prime cost remain $3.8

f Conversion cost include both fixed and variable components. Variable components include direct labour and variable overhead . Fixed component include only fixed overhead. Variable cost per unit doesn't vary with production but fixed cost per unit vary with production.

Direct labour per unit = 70,000 / 50,000 = $1.4

Variable overhead per unit = 35,000 / 50,000 = $0.7

Fixed overhead per unit = 220,000 / 55,000 = $4

Unit conversion cost = 1.4 + 0.7 + 4 = $6.1

Unit conversion cost per unit is $6.1 if 55,000 units are produced.

g Product cost per unit

Direct material = 120,000 / 50,000 = $2.4

Direct labour = 70,000 / 50,000 = $1.4

Variable overhead per unit = 35,000 / 50,000 = $0.7

Fixed overhead per unit = 220,000 / 55,000 = $4

Product cost = 2.4 + 1.4 + 0.7 + 4 = $8.5

Product cost per unit is $8.5 if 55,000 units are produced.

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