Question: A company produces 10,000 units of a product and incurs the following costs:
Direct materials cost: $50,000 Direct labor cost: $30,000 Variable manufacturing overhead: $10,000 Fixed manufacturing overhead: $20,000
Calculate the total cost of production per unit using absorption costing, assuming the fixed overhead is allocated based on the number of units produced.
Solution: Step 1: Calculate the variable cost per unit Direct materials cost per unit = Total direct materials cost / Number of units produced
Direct materials cost per unit = $50,000 / 10,000 units
Direct materials cost per unit = $5 per unit
Direct labor cost per unit = Total direct labor cost / Number of units produced Direct labor cost per unit = $30,000 / 10,000 units
Direct labor cost per unit = $3 per unit
Variable manufacturing overhead per unit = Total variable manufacturing overhead / Number of units produced Variable manufacturing overhead per unit = $10,000 / 10,000 units Variable manufacturing overhead per unit = $1 per unit
Total variable cost per unit = Direct materials cost per unit + Direct labor cost per unit + Variable manufacturing overhead per unit
Total variable cost per unit = $5 + $3 + $1
Total variable cost per unit = $9 per unit
Step 2: Calculate the fixed overhead rate per unit Fixed overhead rate per unit = Total fixed overhead / Number of units produced Fixed overhead rate per unit = $20,000 / 10,000 units Fixed overhead rate per unit = $2 per unit
Step 3: Calculate the total cost per unit using absorption costing Total cost per unit =
Total variable cost per unit + Fixed overhead rate per unit Total cost per unit = $9 + $2
Total cost per unit = $11 per unit
Therefore, the total cost of production per unit using absorption costing is $11 per unit.
Q2 A company produces 10,000 units of a product with fixed costs of $50,000 and variable costs of $5 per unit. If the selling price is $10 per unit, what is the break-even point?
Solution: Total cost = Fixed costs + Variable costs Total cost = $50,000 + ($5 x 10,000) = $100,000 Break-even point = Total cost / Selling price per unit Break-even point = $100,000 / $10 = 10,000 units
Therefore, the break-even point is 10,000 units.
Q3 A company has a cost structure of 60% fixed costs and 40% variable costs. If the company expects to sell 5,000 units at a selling price of $20 per unit, what is the contribution margin per unit?
Solution: Contribution margin per unit = Selling price per unit - Variable cost per unit
Variable cost per unit = 40% x $20 = $8 Contribution margin per unit = $20 - $8 = $12
Therefore, the contribution margin per unit is $12.
Q4 A company has a fixed cost of $75,000 and a variable cost of $10 per unit. If the company wants to earn a profit of $50,000 and has a selling price of $20 per unit, how many units does it need to sell?
Solution: Target profit = Total revenue - Total cost
Target profit = ($20 x Units sold) - ($75,000 + ($10 x Units sold)) $50,000 = ($20 x Units sold) - ($75,000 + ($10 x Units sold)) $50,000 = $10 x Units sold - $75,000
$125,000 = $10 x Units sold Units sold = $125,000 / $10 = 12,500 units
Therefore, the company needs to sell 12,500 units to earn a profit of $50,000.
Q5 A company produces 5,000 units of a product with fixed costs of $40,000 and variable costs of $6 per unit. If the company wants to earn a profit of $20,000, what should be the selling price per unit?
Solution: Total cost = Fixed costs + Variable costs Total cost = $40,000 + ($6 x 5,000) = $70,000 Target revenue = Total cost + Target profit Target revenue = $70,000 + $20,000 = $90,000 Selling price per unit = Target revenue / Units sold Selling price per unit = $90,000 / 5,000 = $18
Therefore, the selling price per unit should be $18 to earn a profit of $20,000.
A company has a fixed cost of $100,000 and a variable cost of $8 per unit. If the company wants to earn a profit of 25% on total cost, what should be the selling price per unit if the company expects to sell 12,500 units?
Solution: Total cost = Fixed costs + Variable costs Total cost = $100,000 + ($8 x 12,500) = $200,000 Target revenue = Total cost + (25% x Total cost)
Target revenue = $200,000 + (0.25 x $200,000) = $250,000
Selling price per unit = Target revenue / Units sold
Selling price per unit = $250,000 / 12,500 = $20