Direct materials is a variable cost, so it can be computed as follows: Direct materials cost per unit = $70,500/5,000 units = $14.10 per unit Direct labor could also be computed the same way, but just to make sure it is purely a variable cost, we'll use the high-low method: Variable direct labor cost per unit = Change in cost ÷ Change in activity = ($156,600 - $130,500) ÷ (6,000 units - 5,000 units) = $26,100 ÷ 1,000 units = $26.10 per unit Direct labor fixed cost element = Total cost - Variable cost element = $156,600 - ($26.10 per unit × 6,000 units) = $156,600 - ($156,600) = $0 Variable manufacturing overhead cost per unit = Change in cost ÷ Change in activity = ($824,400 - $802,000) ÷ (6,000 units - 5,000 units) = $22,400 ÷ 1,000 units = $22.40 per unit Manufacturing overhead fixed cost element = Total cost - Variable cost element = $824,400 - ($22.40 per unit × 6,000 units) = $824,400 - ($134,400) = $690,000 Total variable cost = Direct materials + Direct labor + Variable manufacturing overhead = $14.10 per unit + $26.10 per unit + $22.40 per unit = $62.60 per unit Total fixed overhead cost = $690,000 Total cost to manufacture 5,300 units = Total fixed cost + Total variable cost = $690,000 + ($62.60 per unit × 5,300 units) = $690,000 + ($331,780) = $1,021,780 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs. Learning Objective: 02-04 Analyze a mixed cost using a scattergraph plot and the high-low method. Level: 2 Medium
Direct materials is a variable cost, so it can be computed as follows: Direct materials cost per unit = $70,500/5,000 units = $14.10 per unit Direct labor could also be computed the same way, but just to make sure it is purely a variable cost, we'll use the high-low method: Variable direct labor cost per unit = Change in cost ÷ Change in activity = ($156,600 - $130,500) ÷ (6,000 units - 5,000 units) = $26,100 ÷ 1,000 units = $26.10 per unit Direct labor fixed cost element = Total cost - Variable cost element = $156,600 - ($26.10 per unit × 6,000 units) = $156,600 - ($156,600) = $0 Variable manufacturing overhead cost per unit = Change in cost ÷ Change in activity = ($824,400 - $802,000) ÷ (6,000 units - 5,000 units) = $22,400 ÷ 1,000 units = $22.40 per unit Manufacturing overhead fixed cost element = Total cost - Variable cost element = $824,400 - ($22.40 per unit × 6,000 units) = $824,400 - ($134,400) = $690,000 Total variable cost = Direct materials + Direct labor + Variable manufacturing overhead = $14.10 per unit + $26.10 per unit + $22.40 per unit = $62.60 per unit Total fixed overhead cost = $690,000 Total cost to manufacture 5,300 units = Total fixed cost + Total variable cost = $690,000 + ($62.60 per unit × 5,300 units) = $690,000 + ($331,780) = $1,021,780 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Learning Objective: 02-03 Understand cost behavior patterns including variable costs; fixed costs; and mixed costs. Learning Objective: 02-04 Analyze a mixed cost using a scattergraph plot and the high-low method. Level: 2 Medium
Test%20Bank%20for%20Managerial%20Accounting%20for%20Managers%203rd%20Edition%20Noreen,%20Brewer,%20Garrison.docx