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<p><em><strong>Direct materials $200,000 </strong></em></p> <p><em><strong>Direct labor100,000 </strong></em></p> <p><em><strong>Manufacturing overhead200,000 </strong></em></p> <p><em><strong>Selling and administrative expense150,000 </strong></em></p> <p><em><strong>All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expenses. The total costs to produce and sell110,000 units for the year are </strong></em></p> <p><em><strong>A. $650,000</strong></em></p> <p><em><strong>B.$715000</strong></em></p> <p><em><strong>C. $695000</strong></em></p> <p><em><strong>D. $54000</strong></em></p>
Answer: (C)695,000
Computation
DM =2 *110,000
DL =1 *110,000
Var. Mftg OH =1 *110,000
Fxd Mftg OH =100,000
Var. S&A Exp =0.50 *110,000
Fxd S&A Exp =100,000
TOTAL COST =695,000
The fixed costs will remain the same and variable costs should increase by the same factor as the product volume, which in this case is10%.
Therefore;
Direct materials = $200,000 x1.1 = $220,000
Direct Labour = $100,000 x1.1 = $110,000
Manufacturing Overheads:
Fixed = $100,000
Variable = £100,000 x1.1 = $110,000
Selling & Admin Expenses
Fixed = $100,000
Variable = $50,000 x1.1 = £55,000
The total is, therefore, (C) $695,000
This is how to figure or profiling production cost derived from the direct cost of manufactured product and overhead cost incurred over its net production output for the year.
