can you solve these please Make sure to choose from the list below for the upper

Question

can you solve these please

Make sure to choose from the list below for the upper blanks of each question

# 7

for the 1st blanke (adding more fixed costs or spreading its fixed costs or spreding its variable costs)?

for 2nd blanke(less or more )?

Quiz: Quiz - Chapter 2 Managerial 2 This Question: 4 pts This Test: 6 pts Great - Cola spends $1 on direct materials, direct labor, and variable produces. Fixed manufacturing overhead costs $6 million per year. Th produced 30 million units this year. Management plans to operate clos Management doesn't anticipate any changes in the prices it pays for m Read the requirements Current year's produced units RForecasted total variable costs Next years forecasted units million asted average product cost next year? ate the forecasted average product cost n'' yes, Total fixed costs st.. ' ' Total variable costs million million Requirement 6. What is the forecasted fixed cost per unit? Determine the formula, then calculate the forecasted fixed cost per unit (Ro million Requirement 7. Why does the aerage oroduct cost decrease as production

Explanation / Answer

Dear friend,

These are simple and basis concepts in Management Costing.

R-1:

Total Product cost = Total Fixed cost + Total Variable costs

Total Variable cost includes Direct Materials, Direct Labour and Variable Manufacturing overheads

i.e Total Product cost = $6 + $30 ($1*30 million units) = S36 millions

R-2:

Current Average product cost per unit = Total Product cost per year / Total number units produce per     year at current capacity

i.e Current Average product cost per unit = $36 million (Refer R-1) / 30 million (given @70% capacity)

Current Average product cost per unit = $1.20

R-3:

Current Fixed cost per unit = Current Total Fixed cost per year / Current total Production per year

i.e current fixed cost per unit = $6 million (given in question) / 30 million (given in question)

Current Fixed cost per unit = $0.2

R-4:

Forecasted Total production cost for next year = Total Fixed cost(Forecasted) + Total Variable cost (forecasted)

Note 1 : Given in question Management doesn't anticipate any changes in prices it pays for materials, labour and manufacturing overhead.

Note 2 : Fixed cost is doesn't vary with capacity of utilisation (i.e $6 million for next year)

by considering the above two notes

Forecasted total production cost for next year = $6 million + $40 million ($1*40million units)

Forecasted total Production cost = $46 million

R-5:

Forecasted Average product cost per unit = Total forecasted Product cast (Refer R-4) / Total forecasted Production

i.e average product cost per unit for next year = $46 million / 40 million units (Forecasted)

Forecasted Average product cost per unit for next year = $1.15

R-6:

Forecasted Fixed cost per unit = Total forecasted Fixed per next year / Total Production for next year

i.e forecasted fixed cost per unit = $6 million (refer Note 2) / 40 million units

Forecasted Fixed cost per unit = $0.15

R-7:

Why does the average product cost decrease as production increases?

Because the average product cost decreases as production volume increases because the company is SPREADING ITS FIXED COSTS over 10 million more units, The company will be operating more efficiently, so the average cost of making each unit decreases.

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