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Bowman, Inc., has only variable costs and fixed costs. A review of the company's records...

Question:

Bowman, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when 300,000 units were produced, fixed manufacturing costs amounted to $900,000 and the cost per unit manufactured totaled $12. On the basis of this information, how much cost would the firm anticipate at an activity level of 310,000 units

2. Brooklyn sells a single product to wholesalers. The company's budget for the upcoming year revealed anticipated unit sales of 40,200, a selling price of $21, variable cost per unit of $8, and total fixed costs of $398,000. If Brooklyn's unit sales are 350 units less than anticipated, its break-even point will:

3. Grime-X is studying the profitability of a change in operation and has gathered the following information: Should Grime-X make the change?

Fixed costs: Current operation: $38,000 Anticipation operation: $48,000

Selling price: $16 Anticipation operation: $22

Variable cost: Current operation: $10 Anticipation operation: $12

Sales: Current operation: 9,000 Anticipation operation: 6,000

A. No, because the company will be worse off by $4,000. B. No, because sales will drop by 3,000 units.

C. No, because the company will be worse off by $22,000.

D. It is impossible to judge because additional information is needed.

E.Yes, the company will be better off by $6,000.

The following information applies to the questions displayed below.] Lone Star has computed the following unit costs for the year just ended:

Direct material used: $13

Direct labor: 19

Variable manufacturing overhead: 22

Fixed manufacturing overhead: 31

Variable selling and administrative cost: 7

Fixed selling and administrative cost: 17

Under variable costing, each unit of the company's inventory would be carried at:

A. $85.

B. $29.

C. $61.

D. None of these.

E. $54.

Under absorption costing, each unit of the company's inventory would be carried at:

A. None of these.

B. $61.

C. $29.

D. $54.

E. $85.

Variable Cost:

Variable cost refers to the cost that changes with the change in services and quantity of goods that are manufactured by an organization. Fixed cost is the opposite, it does not change from a period to another.

Answer and Explanation:

1. Given that:

Total cost = $12 cost per unit

Fixed cost = $9,00,000

Quantity produced = 3,00,000 units

Calculating the variable cost per unit:

$12 = (9,00,000 + 3,00,000 V) / 3,00,000 $12 = 3 + V

V = 12 - 3

V = $9

Now given that the quantity produced is 3,10,000 units, therefore the total cost is:

Total cost = fixed cost + quantity produced * variable cost

= 9,00,000 + 9 * 3,10,000

= 9,00,000 + 27,90,000

= $36,90,000

The total cost of producing 3,30,000 units will be $36,90,000.

2. Break-even sales = fixed cost/ contribution per unit

Given that:

Fixed cost = 3,98,000

Contribution per unit = selling price per unit - variable cost per unit

= 21 - 8

= 13

Break-even sales in units = fixed cost / contribution per unit

= 3,98,000 / 13

= 30,615.385 units

The reduction in sales of 350 units has no relevance for break-even sales.

3.

Particulars Current operations Anticipated
Sales 1,44,000 1,32,000
Less: variable cost 90,000 72,000
Contribution 54,000 60,000
Less: fixed cost 38,000 48,000
Profit/ income 16,000 12,000

The company should not make changes, as the income of the company will decrease by $16,000 - $12,000 = $4,000.

3. Variable costing inventory = direct material + direct labor + variable manufacturing overhead

= 13 + 19 + 22

= $54

4. Absorption costing = direct material + direct labor + variable manufacturing overhead + fixed manufacturing overhead

= 13 + 19 + 22 + 31

= $85


Learn more about this topic:

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Variable Costing: Method, Formula & Advantages

from Financial Accounting: Help and Review

Chapter 13 / Lesson 5
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