Question

Bob’s Bistro produces party-sized hoagie sandwiches. For next year, Bob’s Bistro predicts that 50,000 units will be produced with the following total costs:

Direct materials $200,000

Direct labor 100,000

Variable overhead 60,000

Fixed overhead 260,000

Required:

If required, round your answers to the nearest cent.

1. Calculate the prime cost per unit.

$fill in the blank 1 per unit

2. Calculate the conversion cost per unit.

$fill in the blank 2 per unit

3. Calculate the total variable cost per unit.

$fill in the blank 3 per unit

4. Calculate the total product (manufacturing) cost per unit.

$fill in the blank 4 per unit

5. What if the number of units decreased to 40,000 and all unit variable costs stayed the same? indicate the impact on the following costs.

a. Total direct materials decreases by 20%

b. Total direct labor decreases by 20%

c. Total variable overhead decreases by 20%

d. Total fixed overhead does not change no change

e. Unit prime cost decreases by 20%

f. Unit conversion cost decreases by less than 20%

What would the product cost per unit be in this case?

Answer 1

1. The calculation of the prime cost per unit for Bob’s Bistro is $6 ($300,000/50,000).

2. The calculation of the conversion cost per unit for Bob’s Bistro is $7.20 ($360,000/50,000).

3. The calculation of the total variable cost per unit for Bob’s Bistro is $ $7.20 ($360,000/50,000).

4. The calculation of the total product (manufacturing) cost per unit $12.40 ($620,000/50,000).

5. The impact of the following considerations if the production units decrease to 40,000 units is as follows:

a. The total direct materials decreases by 20% to $160,000 (40,000 x $4).

b. The total direct labor decreases by 20% to $80,000 (40,000 x $2).

c. The total variable overhead decreases by 20% to $48,000 (40,000 x $1.20)

d. The total fixed overhead remains at $260,000.

e. The unit prime cost decreases by 20% to $4.80 ($6 x 80%).

f. The unit conversion conversion decreases by less than 20%.

Then, the product cost per unit would be $12.50 (40,000 x $4.80 + $48,000 + $260,000)/40,000.

What are the costs of production?

The costs of production are the costs involved in the manufacture of goods.

The costs of production include the costs of materials, labor, and overhead (both variable and fixed).

Data and Calculations:

Production units next year = 50,000 units

Cost information:                   Total            Unit

Direct materials                  $200,000      $4 ($200,000/50,000)

Direct labor                            100,000      $2 ($100,000/50,000)

Variable overhead                  60,000      $1.20 ($60000/50,000)

Total variable costs =         $360,000      $7.20 ($360,000/50,000)

Fixed overhead                    260,000

Total production costs =   $620,000

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