Question

Exercise 1-8 Product Costs and Period Costs; Variable and Fixed Costs [LO1-3, LO1-4]

Kubin Company’s relevant range of production is 30,000 to 35,000 units. When it produces and sells 32,500 units, its average costs per unit are as follows:

  

	Average Cost per Unit
Direct materials	$	9.00
Direct labor	$	6.00
Variable manufacturing overhead	$	3.50
Fixed manufacturing overhead	$	7.00
Fixed selling expense	$	5.50
Fixed administrative expense	$	4.50
Sales commissions	$	3.00
Variable administrative expense	$	2.50

Required:

1. For financial accounting purposes, what is the total amount of product costs incurred to make 32,500 units?

2. For financial accounting purposes, what is the total amount of period costs incurred to sell 32,500 units?

3. For financial accounting purposes, what is the total amount of product costs incurred to make 35,000 units?

4. For financial accounting purposes, what is the total amount of period costs incurred to sell 30,000 units?

(For all requirements, do not round intermediate calculations.)

Answer is complete but not entirely correct.

	1. Total amount of product costs $828,750selected answer correct 2. Total amount of period costs incurred $503,750selected answer correct 3. Total amount of product costs 4. Total amount of period costs

Answer 1

At production and sales volume of 32,500 units:

Variable Product Costs per unit = Direct Materials + Direct Labor + Variable Manufacturing Overhead
Variable Product Costs per unit = $9.00 + $6.00 + $3.50
Variable Product Costs per unit = $18.50

Fixed Product Cost = Fixed Manufacturing Overhead per unit * Number of units
Fixed Product Cost = $7.00 * 32,500
Fixed Product Cost = $227,500

Variable Period Costs per unit = Sales Commissions + Variable Administrative Expense
Variable Period Costs per unit = $3.00 + $2.50
Variable Period Costs per unit = $5.50

Fixed Period Costs per unit = Fixed Selling Expense + Fixed Administrative Expense
Fixed Period Costs per unit = $5.50 + $4.50
Fixed Period Costs per unit = $10.00

Fixed Period Costs = Fixed Period Costs per unit * Number of units
Fixed Period Costs = $10.00 * 32,500
Fixed Period Costs = $325,000

Answer 3.

At production and sales volume of 35,000 units:

Variable Product Costs per unit = $18.50
Fixed Product Cost = $227,500

Total Product Cost = $18.50 * 35,000 + $227,500
Total Product Cost = $875,000

Answer 4.

At production and sales volume of 30,000 units:

Variable Period Costs per unit = $5.50
Fixed Period Costs = $325,000

Total Period = $5.50 * 30,000 + $325,000
Total Period = $490,000