Gundy Company expects to produce 1,304,400 units of Product XX in 2017. Monthly

Question

Gundy Company expects to produce 1,304,400 units of Product XX in 2017. Monthly production is expected to range from 85,600 to 128,600 units. Budgeted variable manufacturing costs per unit are: direct materials $5, direct labor $7, and overhead $10. Budgeted fixed manufacturing costs per unit for depreciation are $4 and for supervision are $3.

In March 2017, the company incurs the following costs in producing 107,100 units: direct materials $560,500, direct labor $741,700, and variable overhead $1,074,000. Actual fixed costs were equal to budgeted fixed costs.

Explanation / Answer

Budgeted Fixed Cost for 2017 = 1304400 x (4+3) = $9,130,800

Fixed cost applied in March = 107,100 x 7 = $749,700

Total Manufacturing Cost = 560500 + 741700 + 1074000 + 749700 = $3,125,900

Prime Cost = 560500 + 741700 = $1,302,200

Conversion Cost = 741700 + 1074000 + 749700 = $2,565,400

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