The following data apply to the provision of psychological testing services: Req

Question

The following data apply to the provision of psychological testing services:

Required:

Calculate the amount for each of the following (one unit = one test) if the number of tests is 2,000 per month. Also calculate if the number of tests decreases to 1,250 per month. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

Sales price per unit (1 unit = 1 test plus feedback to client) $ 340 Fixed costs (per month): Selling and administration 16,000 Production overhead (e.g., rent of testing facilities) 25,000 Variable costs (per test): Labor for oversight and feedback 145 Outsourced test analysis 15 Materials used in testing 6 Production overhead 11 Selling and administration (e.g., scheduling and billing) 20 Number of tests per month 2,000 tests

Required:

Calculate the amount for each of the following (one unit = one test) if the number of tests is 2,000 per month. Also calculate if the number of tests decreases to 1,250 per month. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)

2,000 Tests 1,250 Tests a. Variable production cost per unit. b. Variable cost per unit. c. Full cost per unit. d. Full absorption cost per unit. e. Prime cost per unit. f. Conversion cost per unit. g. Contribution margin per unit. h. Gross margin per unit.

Explanation / Answer

a. Variable production cost per unit = Labour for oversight and feedback + Outsourced test analysis + Materials used in testing + Production overhead

= $145 + $15 + $6 + $11

= $177

b. Variable cost per unit = Labour for oversight and feedback + Outsourced test analysis + Materials used in testing + Production overhead + Selling and administration

= $145 + $15 + $6+ $11 + $20

= $197

c. Full cost per test = (variable costs + fixed costs) / number of units

For 2,000 tests = $197 + [($16,000+$25,000)/2,000]

= $217.5

For 1,250 tests = $197 + [($16,000+$25,000)/1,250]

= $229.8

d. Full absorption cost per unit = Variable production cost per unit + (production overhead/number of tests)

For 2,000 tests = $177 + ($25,000/2,000)

= $189.5

For 1,250 tests = $177 + ($25,000/1,250)

= $197

e. Prime cost per unit = Labour for oversight and feedback + Outsourced test analysis + Materials used in testing

= $145 + $15 + $6

= $166

f. Conversion cost per unit = Labour for oversight and feedback + Outsourced test analysis + Production overhead + Fixed production overhead per test

For 2,000 tests = $145 + $15 + $11 + ($25,000/2,000)

= $183.5

For 1,250 tests = $145 + $15 + $11 + ($25,000/1,250)

= $191

g. Contribution margin per unit = Sales price per unit - Variable cost per unit

= $340 - $197

= $143

h. Gross margin per unit = Sales price per unit - Full absorption cost per unit

For 2,000 tests = $340 - $189.5

= $150.5

For 1,250 tests = $340 - $197

= $143

2,000 Tests 1,250 Tests a. Variable production cost per unit. $177 $177 b. Variable cost per unit. $197 $197 c. Full cost per unit. $217.5 $229.8 d. Full absorption cost per unit. $189.5 $197 e. Prime cost per unit. $166 $166 f. Conversion cost per unit. $183.5 $191 g. Contribution margin per unit. $143 $143 h. Gross margin per unit. $150.5 $143

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