2016 DeVry/Becker Educational Development Corp ing total uacturing terial ne pla
ID: 2337425 • Letter: 2
Question
2016 DeVry/Becker Educational Development Corp ing total uacturing terial ne plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing overhead costs of the plant 2017 ar Exercises 2-21 three different its own Computing and interpreti ct manufacturing labor, and manufacturing overhead costs. Total nt in July 2017 are $150 million ($15 million of which are fixed). Thi ts at its I own dedicatper products ating unit costs. Minnesota Office Products (MOP) produces aasa lumber plant: Supreme, Deluxe, and Regular. Each product has dicated ring labor, a total amount is allocated to each product line on the basis o line. Summary data (in millions) for July 2017 are as follows: the direct manufacturing labor costs of ea Regular s 60 Deluxe s 57 S 26 S 78 150 Supreme Direct material costs Direct manufacturing labor costs Manufacturing overhead costs Units produced S 89 S 16 $ 48 125 S 24 140 1. Compute the manufacturing cost per unit for e ach product produced in July 2017. at, in August 2017, production was 150 million units of Supreme, 190 million units of Deluxe, and 220 million units of Regular. Why might the July 2017 information on manufacturing cost per unit be misleading when predicting total manufacturing costs in August 20177Explanation / Answer
product
Supreme
Deluxe
regular
total
Direct Material cost
89
57
60
206
Direct Manufacturing labor cost
16
26
8
50
manufacturing overhead cost
48
78
24
150
total manufacturing cost per unit
153
161
92
406
no of units
125
150
140
total manufacturing cost per unit = total manufacturing cost/no of units produced
1.224
1.073333
0.657143
Fixed cost per unit allocated at a rate of 15/50 = .3
4.8
7.8
2.4
15
variable cost per unit = (total manufacturing cost-fixed cost per unit)/no of units
1.19
1.02
0.64
Supreme
Deluxe
regular
total
based on total manufacturing cost = cost of production per unit*units produced
183.6
203.9333
144.5714
532.10
Correct total manuf. costs based on variable manuf. costs plus fixed costs equal
177.84
194.0533
140.8
512.69
add fixed cost
15
total cost
512.69+15
527.69
the use of total manufacturing cost per unit from the July month at a different unit volume level (both in aggregate and at the individual product level) will overestimate total costs of $532.09 million in August 2014 relative to the correct total manufacturing costs of $527.69 million
product
Supreme
Deluxe
regular
total
Direct Material cost
89
57
60
206
Direct Manufacturing labor cost
16
26
8
50
manufacturing overhead cost
48
78
24
150
total manufacturing cost per unit
153
161
92
406
no of units
125
150
140
total manufacturing cost per unit = total manufacturing cost/no of units produced
1.224
1.073333
0.657143
Fixed cost per unit allocated at a rate of 15/50 = .3
4.8
7.8
2.4
15
variable cost per unit = (total manufacturing cost-fixed cost per unit)/no of units
1.19
1.02
0.64
Supreme
Deluxe
regular
total
based on total manufacturing cost = cost of production per unit*units produced
183.6
203.9333
144.5714
532.10
Correct total manuf. costs based on variable manuf. costs plus fixed costs equal
177.84
194.0533
140.8
512.69
add fixed cost
15
total cost
512.69+15
527.69
the use of total manufacturing cost per unit from the July month at a different unit volume level (both in aggregate and at the individual product level) will overestimate total costs of $532.09 million in August 2014 relative to the correct total manufacturing costs of $527.69 million
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