As a result of studying past cost behavior and adjusting for expected price incr

Question

As a result of studying past cost behavior and adjusting for expected price increases in the future, Nicholson Company estimates that its manufacturing costs will be as follows:

Direct Materials.................................................................................. $10.00 per Unit
Direct Labor...........................................................................................$6.00 per Unit
Manufacturing Overhead:
Variable ................................................................................................ $3.00 per Unit
Fixed............................................................................................ $100,000 per Period

Nicholson uses these estimates for planning and control purposes.
a. Nicholson expects to produce 20,000 units during the next period. Prepare a schedule of the expected manufacturing costs.
b. Suppose that Nicholson produces only 16,000 units during the next period. Prepare a flexible budget of manufacturing costs for the 16,000-unit level of activity.
c. Suppose that Nicholson produces 25,000 units during the next period. Prepare a flexible budget of manufacturing costs for the 25000-unit level of activity.

Explanation / Answer

Total Direct Cost:

Direct Material: $10

Direct Labor: $6

Variable Manufacturing O/H: $3

Total Variable Cost = 10 + 6 + 3 = $19

(a) Schedule of expected manufac cost:

(b) 16000 units

(c) 25000 units

Per Unit $ 20000 units Direct Material 10 200000 Direct Labor 6 96000 Variable O/H 3 48000 Total Variable cost
344000 Plus Fixed O/H
100000 Total Manuf Cost
444000

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