Question

The following information provides the amount of cost incurred in August for the cost items indicated. During August, 8,100 units of the firm's single product were manufactured.

Raw materials	$	41,800
Factory depreciation expense		41,000
Direct labor		99,900
Production supervisor's salary		6,200
Computer rental expense		4,200
Maintenance supplies used		700

Required:

a. How much cost would you expect to be incurred for each of these items during September when 9,200 units of the product are planned for production? (Do not round intermediate calculations.)

Raw Materials =
Factory depreciation expense =
Direct labor =
Production Supervisor's Salary=
Computer rental expense =
Maintenance supplies used=
Total cost=

b-1. Calculate the average total cost per unit for the 8,100 units manufactored in August. (Do not round intermediate calculations. Rount your answer to 2 decimal places.) Average cost per unit =

b-2. It is meaningful to use the average total cost figure in part b-1 to predict the cost in subsequent months. True or False?

Answer 1

a. Answer: Estimated cost when units produced are 9,200 units

Raw materials = ($41,800/8,100 units) * 9,200 units = $47,476.54

Factory depreciation expense = $41,000

Direct Labor = ($99,900/8,100 units) * 9,200 units = $113,466.67

Production supervisor's salary = $6,200

Computer rental expense = $4,200

Maintenance supplies used = $700

Total Cost = $213,043.21

b-1. Answer: Calculation of Average cost per unit for the 8,100 units

Total units produced = 8,100 units

Raw materials = $41,800

Factory depreciation expense = $41,000

Direct Labor = $99,900

Production supervisor's salary = $6,200

Computer rental expense = $4,200

Maintenance supplies used = $700

Total Cost = $193,800

Therefore, average cost per unit = Total cost/Total units = $193,800/8,100 units = $23.93

b-2. Answer:

False - It is not meaningful to use the average total cost per unit figure obtained in part b-1 to predict the cost in subsequent months. This is because there are few components of cost which are variable (line raw materials and direct labor) and remaining components of cost are fixed in nature. Variable component of cost will vary in line with the number of units produced but fixed component of cost will not vary and will remain fixed irrespective of number of units produced.