Question

(0.4) Gower, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2012. Account Classification Amount Direct materials All variable $300,000 Direct manufacturing labor All variable 225,000 Power All variable 37,500 Supervision labor 20% variable 56,250 Materials-handling labor 50% variable 60,000 Maintenance labor 40% variable 75,000 Depreciation 0% variable 95,000 Rent, property taxes, and administration 0% variable 100,000 Gower, Inc., produced 75,000 units of product in 2012. Gower's management is estimating costs for 2013 on the basis of 2012 numbers. The following additional information is available for 2013 a. Direct materials prices in 2013 are expected to increase by 5% compared with 2012 b. Under the terms of the labor contract, direct manufacturing labor wage rates are expected to by 10% in 2013 compared with 2012 c. Power rates and wage rates for supervision, materials handling, and maintenance are not expected to change from 2012 to 2013. d. Depreciation costs are expected to increase by 5%, and rent, property taxes, and administration costs are expected to increase by 7%. e. Gower expects to manufacture and sell 80,000 units in 2013. Questions: (i) Complete the following table for 2012. Manufacturing cost classification for 2012: Variable Total Cost Variable Variable Cost Fixed Cost Cost per unit Direct materials $300,000 Direct manufacturing labor Power 225,000 37,500 56,250 60,000 Supervision labor Materials-handling labor Maintenance labor Depreciation Rent, property taxes, and administration 75,000 95,000 100,000 Total:

Answer 1

i.

	Total cost	Variable cost	Fixed cost	Variable cost per unit
Direct material	$300,000	$300,000	0	$4 (300,000/75,000)
Direct manufacturing labor	225,000	225,000	0	3 (225,000/75,000)
Power	37,500	37,500	0	0.5 (37,500/75,000)
Supervision labor	56,250	11,250 (56,250*20%)	45,000 (56,250*80%)	0.15 (11,250/75,000)
Materials handling labor	60,000	30,000 (60,000*50%)	30,000	0.4 (30,000/75,000)
Maintenance labor	75,000	30,000 (75,000*40%)	45,000 (75,000*60%)	0.4 (30,000/75,000)
Depreciation	95,000	0	95,000
Rent, property taxes and administration	100,000	0	100,000
Total:	$948,750

ii.

	Variable cost per unit in 2012	Variable cost per unit in 2013	Total variable cost in 2013
Direct material	$4	$4.2 ($4+5%)	$336,000 (80,000*$4.2)
Direct manufacturing labor	3	3.3 (3+10%)	264,000 (80,000*$3.3)
Power	0.5	0.5	40,000 (80,000*0.5)
Supervision labor	0.15	0.15	12,000 (80,000*0.15)
Materials handling labor	0.4	0.4	32,000 (80,000*0.4)
Maintenance labor	0.4	0.4	32,000 (80,000*0.4)
Depreciation	0	0	0
Rent, property taxes and administration	0	0	0
Total	$4.45	$8.95	$716,000

	Fixed cost in 2012	Fixed cost in 2013	Total variable cost in 2013	Total cost in 2013
Direct material			$336,000	$336,000
Direct manufacturing labor			264,000	264,000
Power			40,000	40,000
Supervision labor	45,000	45,000	12,000	57,000
Materials handling labor	30,000	30,000	32,000	62,000
Maintenance labor	45,000	45,000	32,000	77,000
Depreciation	95,000	99,750 (95,000+5%)	0	99,750
Rent, property taxes and administration	100,000	107,000 (100,000+7%)	0	107,000
Total				$1,042,750

iii.

Total cost in 2012 = $948,750

Unit cost in 2012 = $12.65 (948,750/75,000)

Total cost in 2013 = $1,042,750

Unit cost in 2013 = $13.03 (1,042,750/80,000)