[ 1 ] Cortez Company is planning to introduce a new product that will sell for $

Question

[ 1 ] Cortez Company is planning to introduce a new product that will sell for $106 per unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year Direct materials 900,000 Direct labor 800,000 ( $16 per hour x 50,000 hours) Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for th new product. Simple Regression Analysis Results Dependent variable-Factory overhead costs Independent variable-Direct labor-hours

Explanation / Answer

20000 Units Per unit Direct Material $900,000 $    45.00 Direct labor 800000 $    40.00 Manufacturing Overhead 250000 $    12.50 ($130000 + $5 x DLH) 130000 is fixed $5 x 50000 DLH = Variable cost per unit $    97.50 Fixed Cost $        130,000 So cost equation would be = $130,000 + ($97.50 x Number of units) so ans is D none of the above

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