Super Bike Manufacturing Company presents the following data for the past year:

Question

Super Bike Manufacturing Company presents the following data for the past year: pening inventory: 1,000 Units Sales: 8,000 Units Production: 10,000 Units Direct materials: $120 per unit Direct labor: 15 DLH per unit Direct labor rate: $20 per hour Electrical Rate: $0.15 per unit Utility Rate $0.25 per unit e . .Variable manufacturing overhead expenses: based on production units Variable selling and administrative expenses: based on sales units .Fixed manufacturing overhead expenses: based on production units Fixed selling and administrative expenses: based on sales units Overhead is allocated on DLH .Actual DLH: 140,000 DLH

Explanation / Answer

Part A)

The finished goods ending inventory in units is calculated as below:

Finished Goods Ending Inventory in Units = Opening Stock + Production - Sales

Using the values provided in the question in the above formula, we get,

Finished Goods Ending Inventory in Units = 1,000 + 10,000 - 8,000 = 3,000 units

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Part B)

The unit product cost of one bike is calculated as below:

Unit Product Cost = Direct Materials Per Unit + Direct Labor Per Unit + Electrical Rate Per Unit + Utility Rate Per Unit + Factory Utilities/Total Production + Indirect Labor/Total Production + Factory Contract Labor/Total Production + Total Fixed Manufacturing Expenses/Total Production

where Fixed Manufacturing Expenses = Factory Rent + Factory Insurance + Other Manufacturing Costs

Using the values provided in the question, we get,

Fixed Manufacturing Expenses = 24,000 + 20,000 + 51,000 = $95,000

Unit Product Cost = 120 + 20*15 + .15 + .25 + 12,500/10,000 + 150,000/10,000 + 160,000/10,000 + (95,000/10,000) = $462.15

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Notes/Assumptions

1) DDA-Bulidings and Leasehold Improvements are assumed to be office related. Therefore, these expenses have not been included in the value of fixed manufacturing expenses.

2) Indirect labor, factory contract labor and factory utilities are all variable manufacturing expenses. This can be determined by comparing current year's figures with past year's figures in relation to the production for each year.

3) The question is not clear on electrical rate and utility rate per unit. Therefore, they have been included in calculating unit product cost in addition to other variable manufacturing expenses as provided in the table.

4) The absorption costing method has been used in arriving at unit product cost.

5) There can be a difference in the value of unit product cost because of assumptions made.

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