Costs and Points Question

3.       Variable cost per unit will be reduced from $25 to $18.80. A total of 1,000,000 units will still be sold. The reduction in variable costs per unit is a direct result of the increased fixed costs and the associated automation.

(Again, so far, remember that pricing in this case is set at the marginal cost level.)

Intracompany work was billed at $400 per hour, a rate based on usage estimates for 2001

Note: You can assume that variable costs are constant so that the average of them is the variable cost relevant for a change in sales.

* Variable costs: Assumed from exhibit 6. It will increase the same 8% as the variable revenue.

2. What is the total cost? How much of the total cost are labor costs? Capital costs?

One of the major benefits of expansion is the reduction of fixed cost (fixed and selling). The cost is absorbed by 85,000 units instead of 80,000 units resulting in saving of $0.42 per unit.

To determine the cost of labor to re-work under filled cases, I divided the hourly rate of the employee ($8.50/hr)

Shaving 5% off the estimated direct labor-hours in the predetermined overhead rate will result in an artificially high overhead rate. The artificially high predetermined overhead rate is likely to result in overapplied overhead for the year. The cumulative effect of overapplying the overhead throughout the year is all recognized in December when the balance in the Manufacturing Overhead account is closed out to Cost of Goods Sold. If the balance were closed out every month or every quarter, this effect would be

Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May.

hours, as well as accounting for the set up labor costs for every run. The material

The basic difference between absorption and variable costing relates to the handling of fixed manufacturing

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

The essential relationship between fixed and variable costs is the same whether the budget is static or flexible. The key is that in the flexible budget, both fixed and variable costs are subject to change. In most cases,

Variable Cost per Unit = ( $59,000 − $38,000 ) ÷ ( 3,000 − 1,250 ) = $12 per unit