Chapter 1, Problem 1.24P

a.

To determine

Introduction:

Direct cost: When a cost is directly linked with the production of certain goods or services, it is termed as direct cost. Examples of direct cost are direct material, direct labor.

To compute: The total product cost and period cost which are required to prepare the financial statements.

Answer to Problem 1.24P

The total product is $147000 and period cost would be $59000.

Explanation of Solution

Particular	Amount	Amount
Direct Material		$69000
Direct Labor		350000
Variable manufacturing overhead	15000
Fixed manufacturing overhead	28000
Total manufacturing overhead		43000
Variable selling expense	12000
Fixed selling expense	18000
Total selling expense		30000
Variable administrative expense	4000
Fixed administrative expense	25000
Total administrative expense		29000

Let us calculate the total product cost and total period cost. These are required to prepare financial statements.

Calculation of Total product cost:

  $\begin{array}{l}Totalproductcost=Directmaterials+Directlabor+Manufacturingoverheads\\ \Rightarrow \$69000+435000+\$43000\\ \Rightarrow \$147000\end{array}$

Therefore the total product cost is $147000.

Calculation of total period cost:

  $\begin{array}{l}Totalperiodcost=Totalsellingexpense+Totaladministrativeexpense\\ \Rightarrow \$30000+\$29000\\ \Rightarrow \$59000\end{array}$

Therefore, the total period cost would be $59000.

b.

To determine

Introduction:

Direct cost: When a cost is directly linked with the production of certain goods or services, it is termed as direct cost. Examples of direct cost are direct material, direct labor.

To compute: The total direct manufacturing cost and total indirect manufacturing cost to assign costs to cost objects.

Answer to Problem 1.24P

The total direct manufacturing cost would $104000 and total indirect manufacturing cost would be $43000.

Explanation of Solution

Particular	Amount	Amount
Direct Material		$69000
Direct Labor		350000
Variable manufacturing overhead	15000
Fixed manufacturing overhead	28000
Total manufacturing overhead		43000
Variable selling expense	12000
Fixed selling expense	18000
Total selling expense		30000
Variable administrative expense	4000
Fixed administrative expense	25000
Total administrative expense		29000

Let us calculate the total direct and indirect manufacturing costs. These are required to assign cost to cost object.

Calculation of total direct manufacturing cost:

  $\begin{array}{l}Totaldirectmanufacturingcost=Directmaterials+Directlabor\\ \Rightarrow \$69000+\$35000=\$104000\end{array}$

Therefore, the total direct manufacturing cost would be $104000.

Calculation of total indirect manufacturing cost:

  $\begin{array}{l}Totalindirectmanufacturingcost=Variablemanufacturingoverheads+fixedmanufacturingoverheads\\ \Rightarrow \$15000+\$28000\\ \Rightarrow \$43000\end{array}$ Therefore, the total indirect manufacturing cost would be $43000.

c.

To determine

Introduction:

Direct cost: When a cost is directly linked with the production of certain goods or services, it is termed as direct cost. Examples of direct cost are direct material, direct labor.

To compute: The total manufacturing cost, total non-manufacturing cost , total conversion cost and total prime cost to update the manufacturer.

Answer to Problem 1.24P

The total manufacturing cost would be $147000 and total non-manufacturing cost would be $59000 while the total conversion cost would be $78000 and total prime cost would be $104000.

Explanation of Solution

Given information:

Particular	Amount	Amount
Direct Material		$69000
Direct Labor		350000
Variable manufacturing overhead	15000
Fixed manufacturing overhead	28000
Total manufacturing overhead		43000
Variable selling expense	12000
Fixed selling expense	18000
Total selling expense		30000
Variable administrative expense	4000
Fixed administrative expense	25000
Total administrative expense		29000

Let us calculate the total manufacturing cost, total non-manufacturing cost , total conversion cost and total prime cost to update the manufacturer.

Calculation of total manufacturing cost:

  $\begin{array}{l}Totalmanufacturingcost=Directmaterial+Directlabor+Totalmanufacturingoverheads\\ \Rightarrow \$69000+\$35000+\$43000\\ \Rightarrow \$147000\end{array}$ Therefore, the total manufacturing cost would be $147000.

Calculation of total non-manufacturing cost:

  $\begin{array}{l}Totalnon-manufacturingcostoroverhead==Totalsellingexpense+Totaladministrativeexpense\\ \Rightarrow \$30000+\$29000\\ \Rightarrow \$59000\end{array}$ Therefore the total non-manufacturing cost would be $59000.

Calculation of total conversion cost:

  $\begin{array}{l}Totalconversioncost=Directlabor+Totalmanufacturingoverhead\\ =\$35000+\$43000=\$78000\end{array}$

Therefore, the total conversion cost would be $78000.

Calculation of total prime cost:

  $\begin{array}{l}Totalprimecost=Directmaterials+Directlabor\\ =\$69000+\$35000=\$104000\end{array}$

Therefore, the total prime cost would be $104000.

d.

To determine

Introduction:

Direct cost: When a cost is directly linked with the production of certain goods or services, it is termed as direct cost. Examples of direct cost are direct material, direct labor.

To compute: The total variable manufacturing cost, total fixed cost for the company as whole and total variable cost per unit to predict the cost behavior.

Answer to Problem 1.24P

The total variable manufacturing cost would be $119000 ; total fixed cost for the company as whole would be $71000 ; and total variable cost per unit would be $135.

Explanation of Solution

Let us calculate the total variable manufacturing cost, total fixed cost for the company as whole and total variable cost per unit to predict the cost behavior.

Calculation of total variable manufacturing cost:

  $\begin{array}{l}Totalvariablemanufacturingcost=Directmaterial+Directlabor+Variablemanufacturingoverhead\\ =\$69000+\$35000+\$15000=\$119000\end{array}$

Therefore, the total variable manufacturing cost would be $119000.

Calculation of total fixed cost:

  $\begin{array}{l}Totalfixedcost=Fixedmanufacturingoverhead+Fixedsellingexpenses+Fixedadministrativeexpense\\ =\$28000+\$18000+\$25000=\$71000\end{array}$

Therefore, the total fixed cost would be $71000.

Calculation of variable cost per unit produced and sold:

  $\begin{array}{l}Totalvariablemanufacturingcost=Totalvariablemanufacturingoverhead+Variablesellingexpense\\ +Variableadministrativeexpense\\ =\$15000+\$12000+\$4000=\$31000\end{array}$

Next we need to calculate the variable cost.

  $\begin{array}{l}Variablecost=Directmaterials+Directlabor+Totalvariablemanufacturingoverheadcost\\ =\$69000+\$35000+\$31000\\ =\$135000\end{array}$

Finally, the variable cost per unit has to be calculated.

  $\begin{array}{l}Variablecostperunit=\frac{Totalvariablecost}{Numberofunitproducedandsold}\\ \Rightarrow \frac{\$135000}{1000}=\$135\end{array}$

Therefore, the variable cost per unit would be $135.

e.

To determine

Introduction:

Direct cost: When a cost is directly linked with the production of certain goods or services, it is termed as direct cost. Examples of direct cost are direct material, direct labor.

To compute: The incremental cost which is helpful in decision-making.

Answer to Problem 1.24P

The incremental cost per unit additionally produced will be $119.

Explanation of Solution

Particular	Amount	Amount
Direct Material		$69000
Direct Labor		350000
Variable manufacturing overhead	15000
Fixed manufacturing overhead	28000
Total manufacturing overhead		43000
Variable selling expense	12000
Fixed selling expense	18000
Total selling expense		30000
Variable administrative expense	4000
Fixed administrative expense	25000
Total administrative expense		29000

Incremental cost is a cost incurred on production of an additional unit. Here, we are asked to compute the incremental cost if dozier produces 1001 instead of 1000 units.

The following formula will help to calculate the incremental cost.

  $Incrementalcost=\frac{Totalincrementalcost}{Numberofunitproducedandsold}$

We now have to calculate the total incremental cost.

  $\begin{array}{l}Totalincrementalcost=Directmaterials+Directlabor+Variablemanufacturingoverhead\\ \Rightarrow \$69000+\$35000+\$15000=\$119000\\ \therefore Incrementalcost=\frac{=\$119000}{1000}=\$119\end{array}$

Therefore, the incremental cost per unit additionally produced will be $119.