1. [4 points]. Your startup-company launched its first product for sale two year
ID: 1106233 • Letter: 1
Question
1. [4 points]. Your startup-company launched its first product for sale two years ago. You produced 10,000 units in year 1 and 20,000 in year 2, with the costs as shown in the table below Year 1 $30,000 20,000 Year 2 $105,000 70,000 Direct Labor Direct Materials Overhead Variable Fixed 12,000 36,000 42,000 36,000 Selling and Administrative Costs Variable Fixed 5,000 22,000 17,500 22,000 For each year, determine the following: a. 1 points] Total manufacturing costs b. [0.5 points] Manufacturing costs per unit c. [1 points] Total variable costs d. [0.5 points] Total variable costs per unit e. 1 points] Total costs that have to be recovered if the firm is to make a profitExplanation / Answer
(a) Total manufacturing cost = Direct labor + Direct material + Variable overhead + Fixed overhead
Year 1 ($): 30,000 + 20,000 + 12,000 + 36,000 = 98,000
Year 2 ($): 105,000 + 70,000 + 42,000 + 36,000 = 253,000
(b) Manufacturing cost per unit = Total manufacturing cost / Units produced
Year 1 ($): 98,000 / 10,000 = 9.80
Year 2 ($): 253,000 / 20,000 = 12.65
(c) Total variable cost (TVC) = Direct labor + Direct material + Variable overhead + Variable selling & Admin cost
Year 1 ($): 30,000 + 20,000 + 12,000 + 5,000 = 67,000
Year 2 ($): 105,000 + 70,000 + 42,000 + 17,500 = 234,500
(d) TVC per unit = TVC / Units produced
Year 1 ($): 67,000 / 10,000 = 6.70
Year 2 ($): 234,500 / 20,000 = 11.725
NOTE: First 4 parts are answered.
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