Question

It can generally be argued that every product and in fact every service must consume at least one of the three elements of product/service costie. Direct Material (as defined), Direct Labor (as defined) and Overhead (as defined). Therefore, the total cost of a product/service is defined as follows: Product/Service Cost = DM +DL + OH. Both DM and DL can be directly traceable to a cost object but OH cannot be directly traced to a cost object. Therefore, the amount of overhead charged to a product unless otherwise indicated, is always "Applied Overhead". There must be a basis upon which OH is calculated and applied. In the assignment given below, overhead is applied on the basis of a certain dollar amount per unit of the activity base. Note Indirect materials at $4 per unit and indirect laborat per unit we an integral component of overhead cost generally referred to as Variable Manufacturing Overhead costs. The total amount of variable overhead couts will vary with the volume of activity to the number of units produced, In contrast, Foxed overhead is applied at the rate shown of $5 per unit, calculated over an estimated volume of output of 10,000 units which translates to total foxed overhond of $50.000. The total fixed overhead does not change over the estimated range of activity of 5,000 to 15,000, and therefore the rate of freed overhead cost per unit will vary increase or decrease) with the volume of activity. The same fixed overhead is spread or different volumes of output, deceptively making fixed overhead cost appear like a variable cost. In the example given below overhead is applied on the basis of the number units produced Abel Furniture has determined the following Unit production costs for a table: Direct Materials $10 Direct Labor $12 Indirect Materials $4 Indirect Labor 53 Fixed MOH St Expected level of output 10,000 units Relevant Range 5,000 to 15,000 Fixed MOH per unit is calculated at the expected level of output of 10,000 units. Required: 1. Determine the total Fixed MOH 2. What is the total variable costs per table? 3. What is the total variable MOH per table? 4. Calculate the total variable costs at the expected level of output of 10,000 5 Calculate the cost per unit or table at 10,000 units of output. 6. If the firm were to produce 15.000 units what is the fixed MOH at this level? What is the fored manufacturing cost per unit at this level? 7. What is the total variable cost per unit (table) at 15.000 units of output?

Answer 1

Ans- Total Fixed MOH = 10,000 x $5 $ 50,000 Ans-2 Total variable Cost per Table Direct Materials t Direct labor & Indirect Material of Indirect Labor. 19 $10+ $12+ $4+ $3 $ 29 Ans-3 Total variable MOH per table - Indirect Materials. + Indirect Labour $ 4 + $ 3 Ans. 4 10.000 $29 Total Variable Cost for 10,000 units $ 290,000 Ans-5 Cost per unit for 10,000 units Total Cost Number of units $290,000 + $50,000 10,000 $ 340,000 |$34 10,000 11

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