During May, 16,000 units of the firms single product were manufactured. Raw mate

Question

During May, 16,000 units of the firms single product were manufactured.

Raw materials - $83,200
Factory Depreciation Expense - $81,000
Direct Labor - $198,400
Production Supervisor's Salary - $12,200
Computer Rental Expense - $8,400
Maintenance Supplies Used - $1,600

a.) How must cost would you expect for each of these items during June when 19,200 units of the product are planned for production?
b) Calculate the average total cost per unit for the 16,000 units manufactured in May. Explain why this figure would not be useful to a manager interested in predicting the cost of producing 19,200 units in June.

Explanation / Answer

a. we'd expect: RM 83200/16000 *19200= 99840 FDE 81000 (fixed) DL 198400/16000 *19200= 238080 PSS 12200 (fixed) CRE 8400 (fixed) MSU 1600/16000 *19200= 1920 Total Cost= 384,800 ATC/u= 384800/16000= $24.05/unit This is misleading because it doesn't take into account the fact that fixed costs should not be attributed on a variable basis with production. It would overestimate the cost.

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