Question

The accounting records for Portland Products report the following manufacturing costs for the past year. Direct materials $ 390,000 Direct labor 261,000 Variable overhead 235,000 Production was 180,000 units. Fixed manufacturing overhead was $851,000. For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent, excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by 10 percent. Variable manufacturing overhead per unit is expected to remain the same. Required: a. Prepare a cost estimate for a volume level of 144,000 units of product this year. b. Determine the costs per unit for last year and for this year.

Answer 1

Results are below.

Step-by-step explanation:

First, we need to calculate the unitary costs:

Direct materials= 390,000/180,000= $2.17

Direct labor= 261,000/180,000= $1.45

Variable overhead= 235,000/180,000= $1.31

Now, we determine the new costs:

Direct materials= 2.17*1.2= $2.604

Direct labor= 1.45*1.04= $1.508

Fixed overhead= 851,000*1.1= $936,100

Total cost for 144,000 units:

Total cost= 144,000*(2,604 + 1,508 + 1.31) + 936,100

Total cost= 144,000*5.422 + 936,100

Total cost= $1,716,868

Finally, the unitary cos for both years:

Last year= 2.17 + 1.45 + 1.31= $4.93

This year= $5.422