Chapter 2, Problem 13E

To determine

Fixed and Variable Costs in Manufacturing:

• Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

• Examples are costs of direct material and direct labor.

• Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

• Examples are costs of factory rent, depreciation on plant and equipment

Whether the given statements are true or false

Answer to Problem 13E

Solution:

	TRUE	FALSE
The variable cost will remain the same as last month		X
The total fixed manufacturing cost will be greater than last month		X
The total manufacturing cost will be greater than last month	X
The average fixed manufacturing cost per unit will be less than last month	X
The total variable manufacturing cost per will be less than last month		X
The total manufacturing cost per unit will be greater than last month		X
The variable cost will equal $28	X
The total fixed manufacturing cost equal $422,100		X
The total manufacturing cost will equal $701,400	X
The average fixed manufacturing cost per unit will be $41.79	X
The total variable manufacturing cost per will be $280,000		X
The total manufacturing cost per unit will be $69.79	X

Explanation of Solution

• Given:

10050 units are produced

Variable cost is 40% of total costs

Total manufacturing costs per unit are $70 for 10000 units

Cost Behavior patterns remain unchanged for 10050 units

• Formula Used:

Total Manufacturing Cost = Total Variable manufacturing cost + Total Fixed Manufacturing cost

Calculations
Particulars	Total Cost		Total Cost
Units Produced	10,000			10,050
Total Manufacturing Cost per unit	70			70
Variable manufacturing costs @ 40% per unit	28			28
Fixed manufacturing Costs @ 60% per unit	42			42
Particulars	Cost Per Unit	Total Cost(10000 units)	Cost Per Unit	Total Cost(10050 units)
Variable Manufacturing Costs for 10050 units	28	280,000	28	281,400
Fixed Manufacturing Costs for 10050 units	42	420,000	41.79	420,000
Total Manufacturing Cost for 10050 units	70	700,000	69.79	701,400

• The variable cost will remain the same as last month − This is FALSEas the cost increases from $280,000 to $281,400

• The total fixed manufacturing cost will be greater than last month - This is FALSEas the cost remains same irrespective of the number of units produced

• The total manufacturing cost will be greater than last month − This is TRUEsince the cost increases from $700,000 to $701,400

• The average fixed manufacturing cost per unit will be less than last month - This is TRUEsince the average cost decreases from $42 to $ 41.79 per unit

• The total variable manufacturing cost per will be less than last month - This is FALSEas the cost increases from $280,000 to $281,400

• The total manufacturing cost per unit will be greater than last month - This is FALSEsince the average cost decreases from $70 to $69.79

• The variable cost will equal $28 - This is TRUEas indicated above

• The total fixed manufacturing cost equal $422,100 - This is FALSEas the cost remains same irrespective of the number of units produced

• The total manufacturing cost will equal $701,400 − This is TRUEsince the cost increases from $700,000 to $701,400

• The average fixed manufacturing cost per unit will be $41.79 - This is TRUEsince the average cost decreases from $42 to $ 41.79 per unit

• The total variable manufacturing cost per will be $280,000 This is FALSEas the cost increases from $280,000 to $281,400

• The total manufacturing cost per unit will be $69.79 − This is TRUEsince the average cost decreases from $70 to $69.79

Conclusion

Hence the statements have been categorized as True or False.