Chapter 2, Problem 1TF15

1.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total product cost incurred to make 10000 units.

Answer to Problem 1TF15

The total product cost incurred is $150000.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

Calculation of variable manufacturing cost per unit:

The given information is the cost incurred to produce 10000 units.

  $\begin{array}{l}\text{Variable manufacturing cost per unit=Direct materials+Direct labor+Variable manufacturing overhead}\\ \text{=\$6+\$3}\text{.5+\$1}\text{.50=\$11}\end{array}$

Let us calculate the total manufacturing overhead per unit for 10000 units produced.

  $\begin{array}{l}\text{Total variable manufacturing overhead=Variable manufacturing cost per unit×number of units produced}\\ \text{=\$11×10000=\$110000}\end{array}$

Similarly, we have to calculate the total fixed manufacturing overhead incurred.

  $\begin{array}{l}Totalfixedmanufacturingoverhead=Fixedmanufacturingcostperunit\times Numberofunitsproduced\\ =\$4\times 10000=\$40000\end{array}$

Let us now sum up both the overhead to get the total product cost.

  $\begin{array}{l}Totalproductcost=Totalfixedmanufacturingoverhead+Totalvariablemanufacturingoverhead\\ =\$40000+\$110000=\$150000\\ \end{array}$ Therefore, the total product cost incurred is $150000.

2.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total period costs incurred to sell 10000 units.

Answer to Problem 1TF15

The total period cost is $65000.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

From the given information, it is clear that the variable administrative expenses amount to $0.50 and selling commission is $1.

  $\begin{array}{l}TotalVariablesellingandadministrationcost=(Salescommission\times Numberofunitssold)+\\ (Variableadministrativeexpenses\times Numberofunitssold)\\ =(\$1\times 10000)+(\$0.5\times 10000)\\ =\$10000+\$5000\\ =\$15000\end{array}$

Calculation of total fixed selling and administration cost:

  $\begin{array}{l}Totalfixedsellingandadministrationcost=Averagesalesandadministrativeexpense\times Numberofunitssold\\ =\$5\times 10000\\ =\$50000\end{array}$

Calculation of period cost:

  $\begin{array}{l}Totalperiodcost=Totalfixedsellingandadministrativecost+Totalvariablesellingandadministrativecost\\ =\$50000+\$15000\\ =\$65000\end{array}$

Therefore, the total period cost is $65000.

3.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The variable cost per unit produced and sold if 8000 units are produced and sold.

Answer to Problem 1TF15

The variable cost per unit to produce 8000, will be $12.50.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

With the help of given information, let us make a list of expenses which lead to variable cost.

Direct materials= $6

Direct labor =$3.50

Variable manufacturing overhead=$1.50

Sales commission=$1.00

Variable administrative expenses=$0.50

All the information given above are average cost incurred per unit to produce 10000 units.

When we add all the expenses that lead to variable cost, we get $12.50 as total variable cost per unit since the information given to us is per unit basis. One point to be kept in mind is that no matter what ever is the level of production the unit cost will never change. So, to produce 8000, variable cost per unit will be $12.50

4.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The variable cost per unit produced and sold if 12500 units are produced and sold.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

With the help of given information, let us make a list of expenses which lead to variable cost.

Direct materials= $6

Direct labor =$3.50

Variable manufacturing overhead=$1.50

Sales commission=$1.00

Variable administrative expenses=$0.50

All the information given above are average cost incurred per unit to produce 10000 units.When we add all the expenses that lead to variable cost, we get $12.50 as total variable cost per unit since the information given to us is per unit basis. One point to be kept in mind is that no matter what ever is the level of production the unit cost will never change. So, to produce 12500, variable cost per unit will be $12.50.

5.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total variable cost of units produced and sold if 8000 units are produced and sold.

Answer to Problem 1TF15

The total variable cost incurred when 8000 units are produced and sold will be $100000.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

  $\begin{array}{l}Totalvariablecost=Variablecostperunit\times Numberofunitssold\\ =\$12.50\times 8000\\ =\$100000\end{array}$

Therefore, the total variable cost incurred when 8000 units are produced and sold will be $100000.

6.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total variable cost of units produced and sold if 12500 units are produced and sold.

Answer to Problem 1TF15

The total variable cost incurred when 12500 units are produced and sold will be $156250.

Explanation of Solution

Given information:

	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

  $\begin{array}{l}Totalvariablecost=Variablecostperunit\times Numberofunitssold\\ =\$12.50\times 12500\\ =\$156250\end{array}$

Therefore, the total variable cost incurred when 12500 units are produced and sold will be $156250.

7.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The average fixed manufacturing cost per unit produced if 8000 units are produced.

Answer to Problem 1TF15

When the units produced is 8000, the average fixed manufacturing overhead per unit will be $5.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

A cost when it remains fixed irrespective of production or sales is called fixed cost. So, from the above calculations, we are aware that the total fixed manufacturing overhead is $40000. Using this information, let us calculate the average fixed manufacturing cost per unit when 8000 units are produced.

  $\begin{array}{l}Averagefixedmanufacturingcostperunit=\frac{Totalfixedmanufacturingoverhead}{Numberofunitsproduced}\\ =\frac{\$40000}{8000}\\ =\$5\end{array}$ Therefore, when the units produced are 8000, the average fixed manufacturing overhead per unit will be $5.

8.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The average fixed manufacturing cost per unit produced if 12500 units are produced.

Answer to Problem 1TF15

When the units produced is 12500, the average fixed manufacturing overhead per unit will be $3.20.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

From the above calculations, we are aware that the total fixed manufacturing overhead is $40000. Using this information, let us calculate the average fixed manufacturing cost per unit when 12500 units are produced.

  $\begin{array}{l}Averagefixedmanufacturingcostperunit=\frac{Totalfixedmanufacturingoverhead}{Numberofunitsproduced}\\ =\frac{\$40000}{12500}\\ =\$3.20\end{array}$

Therefore, when the units produced is 12500, the average fixed manufacturing overhead per unit will be $3.20.

9.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total fixed manufacturing cost for the level of production if 8000 units are produced.

Answer to Problem 1TF15

The total fixed manufacturing cost will be $40000.

Explanation of Solution

Given information:

	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

A feature of fixed cost has to be focused here. A fixed cost remains fixed and does not change according to the level of production. From the above calculation, the total fixed manufacturing cost will be $40000.

10.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total fixed manufacturing cost for the level of production if 12500 units are produced.

Answer to Problem 1TF15

The total fixed manufacturing cost will be $40000.

Explanation of Solution

Given information:

	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

A feature of fixed cost has to be focused here. A fixed cost remains fixed and does not change according to the level of production. From the above calculation, the total fixed manufacturing cost will be $40000.

11.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total manufacturing overhead cost for the level of production if 8000 units are produced along with the per unit cost.

Answer to Problem 1TF15

When 8000 units are produced, the total manufacturing cost will be $52000 and its per unit cost will be $6.50.

Explanation of Solution

Given information:

	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

  $Totalmanufacturingcost=Totalvariablemanufacturingoverhead+Totalfixedcost$

Here, we are told that 8000 units are produced, so we have to calculate the total variable cost for 8000 units produced.

  $\begin{array}{l}Totalvariablecost=Variablecostperunit\times Numberofunitsproduced\\ =\$1.50\times \$8000=\$12000\end{array}$

By substituting the amounts, we get

  $\begin{array}{l}Totalmanufacturingcost=\$12000+\$40000\\ =\$52000\end{array}$

To calculate the per unit cost, we have to divide the total manufacturing cost by number of units produced.

  $Manufacturingcostperunit=\frac{\$52000}{8000}=\$6.50$

Therefore, when 8000 units are produced, the total manufacturing cost will be $52000 and its per unit cost will be $6.50.

12.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total manufacturing overhead cost for the level of production if 12500 units are produced along with the per unit cost.

Answer to Problem 1TF15

When 12500 units are produced, the total manufacturing cost will be $58750 and per unit cost will be $4.70.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

  $Totalmanufacturingcost=Totalvariablemanufacturingoverhead+Totalfixedcost$

Here, we are told that 12500 units are produced, so we have to calculate the total variable cost for 12500 units produced.

  $\begin{array}{l}Totalvariablecost=Variablecostperunit\times Numberofunitsproduced\\ =\$1.50\times 12500=\$18750\end{array}$

By substituting the amounts, we get

  $\begin{array}{l}Totalmanufacturingcost=\$18750+\$40000\\ =\$58750\end{array}$

To calculate the per unit cost, we have to divide the total manufacturing cost by number of units produced.

  $Manufacturingcostperunit=\frac{\$58750}{8000}=\$4.70$

Therefore, when 12500 units are produced, the total manufacturing cost will be $58750 and per unit cost will be $4.70.

13.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The contribution margin if selling price per unit is $22.

Answer to Problem 1TF15

The contribution margin per unit when the selling price is $22 will be $9.50.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

  $\begin{array}{l}Contributionmarginperunit=Sellingpriceperunit-Variablecostperunit\\ =\$22-\$12.50=\$9.50\end{array}$

Therefore, the contribution margin per unit when the selling price is $22 will be $9.50.

15.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The total direct and indirect manufacturing cost incurred if unit produced are 11000.

Answer to Problem 1TF15

The Total manufacturing cost is $56500.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

  $\begin{array}{l}Directmanufacturingcostperunit=Directmaterialperunit+Directlaborperunit\\ =\$6+\$3.50\\ =\$9.50\end{array}$

Now, units produced= 11000

  $\begin{array}{l}Directmanufacturingcost=Directmanufacturingcostperunit\times Numberofunitsproduced\\ =\$9.50\times 11000=\$104500\end{array}$

Let us now calculate the total manufacturing cost when units produced is 11000.

  $Totalmanufacturingcost=Totalfixedcost+Totalvariablecost$

Calculation of total variable cost:

  $\begin{array}{l}Totalvariablecost=Variablecostperunit\times Numberofunitsproduced.\\ =\$1.50\times 11000\\ =\$16500\end{array}$

  $Totalmanufacturingcost=\$40000+\$16500=\$56500$

16.

To determine

Introduction:

Cost classification: It refers to grouping of various costs based on their nature and similarity. It is a very essential part in cost accounting and help managers in taking decisions while budgeting and maximizing future profits.

The incremental manufacturing cost incurred in case production increases from 10000 to 10001 units.

Answer to Problem 1TF15

The incremental manufacturing cost incurred when units produced is 11000 will be $11.

Explanation of Solution

Given information:

Particular	Average cost per unit
Direct materials	$6.00
Direct Labor	$3.50
Variable manufacturing overhead	$1.50
Fixed manufacturing overhead	$4.00
Fixed selling expense	$3.00
Fixed administrative expense	$2.00
Sales commissions	$1.00
Variable administrative expense	$0.50

  $\begin{array}{l}Incrementalcostperunitproduced=Directmaterialperunit+Directlaborperunit+Variable\\ manufacturingoverheadperunit\\ =\$6+\$3.50+\$1.50=\$11\end{array}$

Variable cost per unit does not change with a change in level of production.

Therefore, the incremental manufacturing cost incurred when units produced is 11000 will be $11.