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Casting Technology Resources (CTR) has purchased 10,000 pumps annually from Kobec, Incorporated. Because the price keeps increasing and reached $68.00 per unit last year, CTR's management has asked for an estimate of the cost of manufacturing the pump in CTR's facilities. CTR makes stampings and castings and has little experience with products requiring assembly.

Casting Technology Resources (CTR) has purchased 10,000 pumps annually from Kobec, Incorporated. Because the price keeps increasing and reached $68.00 per unit last year, CTR's management has asked for an estimate of the cost of manufacturing the pump in CTR's facilities. CTR makes stampings and castings and has little experience with products requiring assembly.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Calculate the relevant cost per unit.

Casting Technology Resources (CTR) has purchased 10,000 pumps annually from Kobec, Incorporated. Because the price keeps increasing and reached $68.00 per unit last year, CTR’s management has asked for an estimate of the cost of manufacturing the pump in CTR’s facilities. CTR makes stampings and castings and has little experience with products requiring assembly. The engineering, manufacturing, and accounting departments have prepared a report for management that includes the following estimate for an assembly run of 10,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed. The report states that total costs for 10,000 units are estimated at $957,000, or $95.70 per unit. The current purchase price is $68.00 per unit, so the report recommends continued purchase of the product. | Components (outside purchases) | $120,000 | |-------------------------------------|----------| | Assembly labor* | $300,000 | | Manufacturing overhead† | $450,000 | | General and administrative overhead‡| $87,000 | | **Total costs** | **$957,000** | *Assembly labor consists of hourly production workers. †Manufacturing overhead is applied to products on a direct-labor-dollar basis. Variable-overhead costs vary closely with direct-labor dollars. - Fixed overhead: 50% of direct-labor dollars - Variable overhead: 100% of direct-labor dollars - Manufacturing-overhead rate: 150% of direct-labor dollars ‡General and administrative overhead is applied at 10 percent of the total cost of material (or components), assembly labor, and manufacturing overhead.
Transcribed Image Text:Casting Technology Resources (CTR) has purchased 10,000 pumps annually from Kobec, Incorporated. Because the price keeps increasing and reached $68.00 per unit last year, CTR’s management has asked for an estimate of the cost of manufacturing the pump in CTR’s facilities. CTR makes stampings and castings and has little experience with products requiring assembly. The engineering, manufacturing, and accounting departments have prepared a report for management that includes the following estimate for an assembly run of 10,000 pumps. Additional production employees would be hired to manufacture the pumps but no additional equipment, space, or supervision would be needed. The report states that total costs for 10,000 units are estimated at $957,000, or $95.70 per unit. The current purchase price is $68.00 per unit, so the report recommends continued purchase of the product. | Components (outside purchases) | $120,000 | |-------------------------------------|----------| | Assembly labor* | $300,000 | | Manufacturing overhead† | $450,000 | | General and administrative overhead‡| $87,000 | | **Total costs** | **$957,000** | *Assembly labor consists of hourly production workers. †Manufacturing overhead is applied to products on a direct-labor-dollar basis. Variable-overhead costs vary closely with direct-labor dollars. - Fixed overhead: 50% of direct-labor dollars - Variable overhead: 100% of direct-labor dollars - Manufacturing-overhead rate: 150% of direct-labor dollars ‡General and administrative overhead is applied at 10 percent of the total cost of material (or components), assembly labor, and manufacturing overhead.
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