Question

The accounting records for Portland Products report the following manufacturing costs for the past year: Direct materials $ 360,000 Direct labor 268,000 Variable overhead 233,000 Production was 180,000 units. Fixed manufacturing overhead was $843,000. For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent, excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by 10 percent. Variable manufacturing overhead per unit is expected to remain the same. Required: a. Prepare a cost estimate for a volume level of 144,000 units of product this year. (Do not round intermediate computations.) b. Determine the costs per unit for last year and for this year. (Round your answers to 2 decimal places.)

Answer 1

Working note

Statement of Cost
	180000 Units	Per Unit (Cost/180000)
Direct material	$      360,000.00	$               2.00*
Direct Labor	$      268,000.00	$               1.49
Variable Overheads	$      233,000.00	$               1.29
Total variable Cost	$      861,000.00	$               4.78
Fixed cost	$      843,000.00
Total Cost	$ 1,704,000.00

*360000/180000

Change in Cost
	Current	Change	Changed Cost
Direct material (per Unit)	$   2.00	(2+20%)	$   2.40
Direct Labor (Per unit)	$   1.49	(1.49+4%)	$ 1.55
Fixed manufacturing overheads (Total)	$                   843,000.00	(843000+10%)	$ 927,300.00

Cost Estimate
	144000 Units	Working
Direct material	$     345,600.00	144000*2.4
Direct Labor	$     223,142.40	144000*1.55
Variable Overheads	$     186,400.00	$233000/180000x144000
Total variable Cost	$     755,142.40
Fixed cost	$     927,300.00	843000+10%
Total Cost	$ 1,682,442.40

Cost per Unit
		Last year	This Year
(A)	Total Cost	$ 1,704,000.00	$ 1,682,442.40
(B)	Total Units	180000	144000
(A/B)	Cost per Unit	$ 9.47	$ 11.68