Question

2 Bearcat Company's relevant range of production is 8,500 units to 10,500 units. When it produces and sells 9,000 units, its average costs per unit are as follows: Direct materials Direct labor Variable manufacturing overhead Insurance on factory Fixed selling expense Sales commissions Utilities on headquarter office Average Cost Per Unit $ 6.50 $ 4.00 $ $ 4.00 $3.50 $ 1.00 $ 0.50 What is total product cost when it produces and sells 10,000 units? $ $ $ $ 166,000 144,000 130,000 120,000 156,000

Answer 1

2. E. $156000

solution:

	Per unit	Total
Direct material ($6.5*10000)	$6.5	$65000
Direct labor ($4*10000)	$4	$40000
Variable manufacturing overhead ($1.5*10000)	$1.5	$15000
Insurance on factory overhead ($4*9000)		$36000
Total product cost		$156000

Note : Product cost doesn't include selling and administration cost, so commission, head office utilities and selling expense is not included.

6.B. 1800

Solution:

Product cost per unit under gaap includes fixed manufacturing overhead

therefore,

per unit fixed manufacturing overhead = $11200/1600

= $7

per unit fvariable product cost = $42 -$7 =$35

	Per unit	Total
Sales (1600*$75)		$120000
(-) Expenses
variable product cost (1600*$35)	$56000
fixed manufacturing overhead	$11200
Variable selling and administrative cost (1600*$5)	$8000
Fixed selling and administrative cost	$x
Total expenses		$75200+$x
Net operating income		$38000

Net operating income = Sales - Total expenses

$38000 = $120000 - ($75200+$x)

$38000 = $120000 - $75200 - $x

$x = $120000 - $75200 - $38000

$x = $6800

therefore,

Fixed selling and administrative cost = $4400

Contribution margin per unit = selling price - total variable expenses

= $75 - ($35+$5)

= $75 - $40

= $35

Total fixed cost = $11200+$6800 = $18000

Number of units to earn NOI of $45000 = (required profit + fixed cost)/Contribution margin per unit

= ($45000+$18000)/$35

= $63000/$35

= 1800