Y Company uses account analysis to estimate total overhead costs for each month.

Question

Y Company uses account analysis to estimate total overhead costs for each month. In May, when production was 1,200 units, the plant manager classified each overhead cost item as fixed and variable as follows:

                                   Cost Item                Total Cost                          Cost Behavior

                                     Utilities                         $25,500                               100% variable

                                     Supplies                        18,600                                 20% fixed

   Maintenance 17,600 100% fixed

If September production is expected to be 1,320 units, what will variable cost per unit be?

Explanation / Answer

Utilities cost per unit = 25500 / 1200 = $21.25

Variable Supplies cost = 0.80 * 18600 = $14880

So, Supplies cost per unit = 14880 / 1200 = $12.4

So, total variable cost per unit $12.4 + 21.25 = $33.65...ANSWER

SO, total variable cost for 1320 units = $44,418

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