Keep Cool Industries, Inc., manufactures fans for personal use. Department 70 is
ID: 2490475 • Letter: K
Question
Keep Cool Industries, Inc., manufactures fans for personal use. Department 70 is responsible for assembling the fan. Department 71 packages them for shipment. Keep Cool recently produced 10,000 fans for a national retailer. In fulfilling this order, the departments incurred the following costs:
1. Compute the unit cost for each department.
2. Compute the total unit cost for the national retailer order.
3. The selling price for this order was $10 per unit. Was the selling price adequate? List the assumptions and/or computations upon which you based your answer. What suggestions would you make to Keep Cool’s management about the pricing of future orders?
4. Compute the prime costs and conversion costs per unit for eachdepartment.
Explanation / Answer
1)
For 70 Dept:
= ($30,000+$8,000+$5,000)÷10,000
= $4.30
For 71 Dept:
= ($4,000+$2,000+$3,000)÷10,000
= $0.90
2)
= $4.30+$0.90
= $5.20
3)
Since cost per unit was only $5.20. Unit price of $10 was profitable to keep cool industries.
In pricing future orders it should not set any price less than the per unit variable costs. If this condition was not followed, keep cool will incur heavy losses.
4)
For 70 Dept:
Prime costs:
= $30,000+$8,000
= $38,000
Conversion costs per unit:
= ($8,000+$5,000)÷10,000
= $1.30
For 71 Dept:
Prime costs:
= $4,000+$2,000
= $6,000
Conversion costs per unit:
= ($2,000+$3,000)÷10,000
= $0.50
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