An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Att

Question

An Internet gourmet foods company, “Yumminess”, will be including “Chocolate Attack Brownies” (CAB) in their online catalog. CAB will be sold in square tins and captioned with personal greetings. Jordan negotiated a selling price to Yumminess at $10 per tin.

You, using your accounting knowledge, had previously budgeted a cost of $8 per tin, which includes $6 of direct material and $1.50 of direct labor. Annual manufacturing overhead is estimated at $100,000 for the expected sales of 200,000 tins. Operating expenses are projected to be $80,000 annually.

After looking over the costs for manufacturing overhead and operating expenses, you approximate that 85% of manufacturing overhead and 20% of operating expenses are variable costs.

Jordan wants you to calculate a flexible manufacturing overhead budget assuming an annual level of 230,000 units instead of 200,000.

What would be total variable manufacturing overhead costs for this new level? (Round to the nearest dollar.)

Explanation / Answer

Details Amt $/Unit Current annual level of tins sales          200,000 Annual Manufacturing Overhead          100,000 Variable Part of current Manufacturing Overhead @85%=             85,000 Variable Manufacturing Overhead per Tin=85000/200000= $           0.425 Estimated Annual Level of sales of tin=          230,000 Variable Manufacturing Overhead at this level @ 0.425/tin= $ 97,750.00

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