Compute total and average costs Fizzy Cola spends $1.00 on direct materials, direct labor and variable manufacturing overhead for every unit (a 12 pack of soda) that it produces. Fixed manufacturing overhead costs $5 million per year. The plant, which is currently operating at only 75% of capacity, produced 20 million units this year. Management plans to operate closer to full capacity next year, producing 25 million units. Management doesn’t anticipate any changes in the prices it pays for materials, labor, and manufacturing overhead. What is current total product cost for the 20 million units including fixed and variable costs? What is the current average product cost per unit? What is the current fixed cost per unit? What is the forecasted total product cost next year (for the 25 million units?) Why does the average product cost decrease as production increases? What is the forecasted average product cost next year? What is the forecasted fixed cost per unit?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Compute total and average costs
Fizzy Cola spends $1.00 on direct materials, direct labor and variable manufacturing
- What is current total product cost for the 20 million units including fixed and variable costs?
- What is the current average product cost per unit?
- What is the current fixed cost per unit?
- What is the
forecasted total product cost next year (for the 25 million units?) - Why does the average product cost decrease as production increases?
- What is the forecasted average product cost next year?
- What is the forecasted fixed cost per unit?
Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and specify the other subparts (up to 3) you’d like answered.
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