Chapter 1, Problem 9E

Fixed, Variable, and Mixed Costs
Refer to the data given in Exercise 1-7. Answer all questions independently.
Required:
1. If 18,000 units are produced and sold, what is the variable cost per unit produced and sold?
2. If 22,000 units are produced and sold, what is the variable cost per unit produced and sold?
3. If 18,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?
4. If 22,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold?
5. If 18,000 units are produced, what is the average fixed manufacturing cost per unit produced?
6. If 22,000 units are produced, what is the average fixed manufacturing cost per unit produced?
7. If 18,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?
8. If 22,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?

To determine

Introduction:

Fixed and Variable Cost:

Fixed costs are costs that remains constant and do not fluctuate with the change in activity volumes or production. The increase or decrease in activity volume or production does not impact the cost as the fixed cost is associated with the product. Indirect costs and factory overheads are included in fixed costs.

Variable costs are costs that fluctuates with the activity volume or production. The cost varies with the level of change in activity volume or production. Increase in activity or production leads to increase in total costs and decreased activity or production leads to reduction in total costs. Examples of variable costs include wages paid to labor, sales commission etc. Variable costs are helpful in decision-making process by managers in production process.

Requirement-1:

To calculate: The variable cost per unit produced and sold when $18,000$ units are produced and sold.

Answer to Problem 9E

Solution:

Explanation of Solution

Total Variable cost per unit is calculated by using the formula:

  $TotalVariablecostperunit=Totalamount/NumberofunitsProduced$

Total variable amount is computed as Number of units produced*Cost per unit

Conclusion

Hence the variable cost per unit when $18,000$ units are produced and sold is $\$14.00$.

To determine

To calculate: The variable cost per unit produced and sold when $22,000$ units are produced and sold.

Answer to Problem 9E

Solution:

Explanation of Solution

Total Variable cost per unit is calculated by using the formula:

  $TotalVariablecostperunit=Totalamount/NumberofunitsProduced$

Total variable amount is computed as Number of units produced*Cost per unit

Conclusion

Hence the variable cost per unit when $22,000$ units are produced and sold is $\$14.00$.

To determine

To calculate: The total amount of variable cost when $18,000$ units are produced and sold.

Answer to Problem 9E

Solution:

Explanation of Solution

Variable costs includes the sum of all costs that changes with the level of production such as cost of direct labor, direct material, variable overheads, variable selling and administrative expenses.

Conclusion

The total amount of variable cost is $\$126,000$ when $18,000$ units are produced and sold.

To determine

To calculate: The total amount of variable cost when $22,000$ units are produced and sold.

Answer to Problem 9E

Solution:

Explanation of Solution

Variable costs includes the sum of all costs that changes with the level of production such as cost of direct labor, direct material, variable overheads, variable selling and administrative expenses.

Conclusion

The total amount of variable cost is $\$154,000$ when $22,000$ units are produced and sold.

To determine

To Calculate: The average fixed manufacturing cost per unit when $18,000$ units are produced.

Answer to Problem 9E

Solution: Average Fixed Manufacturing Cost per Unit for $22,000$Units= $\$5.56$

Explanation of Solution

The formula for calculating average fixed manufacturing cost per unit is:

  $AverageFixedManufacturingCostperUnit=Totalfixedmanufacturingcosts/NumberofunitsProduced$

Average Fixed Manufacturing Cost per Unit for 18,000 Units= $100,000/18,000$

Average Fixed Manufacturing Cost per Unit for 18,000 Units= $\$5.56$

Total Fixed Manufacturing Cost is computed as Budgeted Units * Fixed Manufacturing cost per unit.

Total Fixed Manufacturing Cost= $20,000*\$5=\$100,000$

Conclusion

Hence the average fixed manufacturing cost per unit when $18,000$ units are produced is $\$5.56$

To determine

To Calculate: The average fixed manufacturing cost per unit when $22,000$ units are produced.

Answer to Problem 9E

Solution: Average Fixed Manufacturing Cost per Unit for 22,000 Units = $\$4.54$

Explanation of Solution

The average fixed manufacturing cost per unit is calculated by using the formula,

  $AverageFixedManufacturingCostperUnit=Totalfixedmanufacturingcosts/NumberofunitsProduced$

Average Fixed Manufacturing Cost per Unit= $\$100,000/22,000$

Average Fixed Manufacturing Cost per Unit for 22,000 Units $=\$4.54$

Total Fixed Manufacturing Cost is computed as Budgeted Units * Fixed Manufacturing cost per unit

Total Fixed Manufacturing Cost= $20,000*\$5=\$100,000$

Conclusion

Hence the average fixed manufacturing cost per unit when 22,000 units are produced is $\$4.54$.

To determine

To calculate:

The total amount of fixed manufacturing overhead incurred to support when 18,000 units are produced and sold.

Answer to Problem 9E

Solution:

Explanation of Solution

Fixed overhead cost does not change with the level of activity or production. Hence the budgeted 20,000 units are taken for calculating total amount of fixed manufacturing overhead that is constant for all levels of production.

Conclusion

Hence the total amount of fixed manufacturing overhead will be $100,000 to support 18,000 units of goods produced and sold.

To determine

To Calculate:

The total amount of fixed manufacturing overhead incurred to support when 22,000 units are produced and sold.

Answer to Problem 9E

Solution:

Explanation of Solution

Fixed overhead cost does not change with the level of activity or production. Hence the budgeted 20,000 units are taken for calculating total amount of fixed manufacturing overhead that is constant for all levels of production.

Conclusion

Hence the total amount of fixed manufacturing overhead will be $\$100,000$ to support $22,000$ units of goods produced and sold