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Lurvey, Inc., a manufacturer of plastic products, reports the following manufacturing costs and...

Question:

Lurvey, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2014.

Account Classification Amount
Direct materials All variable $350,000
Direct manufacturing labor All variable $280,000
Power All variable $70,000
Supervision labor 15% variable $70,000
Materials-handling labor 60% variable 52,500
Maintenance labor 50% variable 70,000
Depreciation 0% variable 98,000
Rent, property taxes, and administration 0% variable 105,000

Lurvey, Inc., produced 70,000 units of product in 2014. Lurvey's management is estimating costs for 2015 on the basis of 2014 numbers. The following additional information is available for 2015.

a. Direct materials prices in 2015 are expected to increase by 4% compared to 2014.

b. Under the terms of the labor contract, direct manufacturing labor wage rates are expected to increase by 4% in 2015 compared with 2014.

c. Power rates and wage rates for supervision, materials handling, and maintenance are not expected to change from 2014 to 2015.

d. Depreciation costs are expected to increase by 8%, and rent, property taxes, and administration costs are expected to increase by 9%.

e. Lurvey expects to manufacture and sell 80,000 units in 2015.

Required:

Now calculate the variable unit cost in 2015. (Round the unit cost to the nearest cent. Complete all answer boxes. If an account does not have a variable unit cost, enter 0.)

Variable unit
Account cost in 2015
Direct materials
Direct manufacturing labor
Power
Supervision labor
Materials-handling labor
Maintenance labor
Depreciation
Rent, prop. taxes, and admin.

Variable Cost:

Variable Cost is a cost that varies in accordance with the changes in the level of activities. If the level of activities increase, the total variable cost also increase. In the opposite, when the level of activities decrease, the total variable cost decrease as well. However, the unit variable cost remains constant.

Answer and Explanation:

Direct Materials (350,000*104%) 364,000
Direct Labor (280,000*104%) 291,200
Power 70,000
Supervision labor 70,000
Materials-handling labor 52,500
Maintenance labor 70,000
Depreciation (98,000*1.08) 105,840
Rent, property taxes, and administration (105,000*1.09) 114,450
Total Costs 1,137,990
Units Manufactured 80,000
Variable Cost per Unit 14.22

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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