The following manufacturing costs were incurred by the Miracle Mile Company in 2019: Direct materials $ 225,000 Direct labor 350,000 Manufacturing overhead 470,000 These costs were incurred to produce 50,000 units of product. Variable manufacturing overhead was 70% of the direct materials cost. In 2020, the direct material and variable overhead costs per unit will increase by 12%, but the direct labor costs per unit are not expected to change. Fixed manufacturing costs are expected to increase by 8%. Required: (a.) Prepare a cost estimate for an activity level of 40,000 units of product in 2020. (b.) Determine the total product costs per unit for 2019 and 2020.
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.
The following
| Direct materials | $ | 225,000 | |
| Direct labor | 350,000 | ||
| Manufacturing |
470,000 | ||
These costs were incurred to produce 50,000 units of product. Variable manufacturing overhead was 70% of the direct materials cost.
In 2020, the direct material and variable overhead costs per unit will increase by 12%, but the direct labor costs per unit are not expected to change. Fixed manufacturing costs are expected to increase by 8%.
Required:
(a.) Prepare a cost estimate for an activity level of 40,000 units of product in 2020.
(b.) Determine the total product costs per unit for 2019 and 2020.
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