A cost object is anything for which a separate measurement of costs is desired. Examples include a product, a service, a project, a customer, a brand category, an activity, and a department. Show
Direct costs of a cost object are related to the particular cost object and can be traced to that cost object in an economically feasible (cost-effective) way. Indirect costs of a cost object are related to the particular cost object but cannot be traced to that cost object in an economically feasible (cost-effective) way. Cost assignment is a general term that encompasses the assignment of both direct costs and indirect costs to a cost object. Direct costs are traced to a cost object, while indirect costs are allocated to a cost object. Managers believe that direct costs that are traced to a particular cost object are more accurately assigned to that cost object than are indirect allocated costs. When costs are allocated, managers are less certain whether the cost allocation base accurately measures the resources demanded by a cost object. Managers prefer to use more accurate costs in their decisions. Factors affecting the classification of a cost as direct or indirect include A variable cost changes in total in proportion to changes in the related level of total activity or volume. An example is sales commission paid as a percentage of each sales revenue dollar. A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume. An example is the leasing cost of a machine that is unchanged for a given time period (such as a year) regardless of the number of units of product produced on the machine. A cost driver is a variable, such as the level of activity or volume that causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For example, the number of vehicles assembled is a driver of the costs of steering wheels on a motor-vehicle assembly line. The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range. A unit cost is computed by dividing some amount of total costs (the numerator) by the related number of units (the denominator). In many cases, the numerator will include a fixed cost that will not change despite changes in the denominator. It is erroneous in those cases to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels. Manufacturing-sector companies purchase materials and components and convert them into various finished goods, for example automotive and textile companies. Merchandising-sector companies purchase and then sell tangible products without changing their basic form, for example retailing or distribution. Service-sector companies provide services or intangible products to their customers, for example, legal advice or audits. Manufacturing companies have one or more of the following three types of inventory: Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. These costs are included in work-in-process and finished goods inventory (they are “inventoried”) to accumulate the costs of creating these assets. Period costs are all costs in the income statement other than cost of goods sold. These costs are treated as expenses of the accounting period in which they are incurred because they are expected not to benefit future periods (because there is not sufficient evidence to conclude that such benefit exists). Expensing these costs immediately best matches expenses to revenues. Direct material costs are the acquisition costs of all materials that eventually become part of the cost object (work in process and then finished goods) and can be traced to the cost object in an economically feasible way. Direct manufacturing labor costs include the compensation of all manufacturing labor that can be traced to the cost object (work in process and then finished goods) in an economically feasible way. Manufacturing overhead costs are all manufacturing costs that are related to the cost object (work in process and then finished goods) but cannot be traced to that cost object in an economically feasible way. Prime costs are all direct manufacturing costs (direct material costs and direct manufacturing labor costs). Conversion costs are all manufacturing costs other than direct material costs. Overtime premium is the wage rate paid to workers (for both direct labor and indirect labor) in excess of their straight-time wage rates. Idle time is a subclassification of indirect labor that represents wages paid for unproductive time caused by lack of orders, machine breakdowns, material shortages, poor scheduling, and the like. A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include  SOLUTIONChoice "2" is correct.This question asks which of a series of statements about costs is/are correct. "All of the above" is an available option.Statement I says that the cost of the direct materials in Applewhite's products is considered a variable cost. The more Applewhite manufactures, the more the total cost of the direct materials will be. Statement I is correct.Statement II says that the cost of depreciation of Applewhite's plant machinery is considered a variable cost because Applewhite uses an accelerated depreciation method for both book and income tax purposes. Just because a cost changes over time (which is what using an accelerated depreciation method will cause) does not mean that the cost is variable. The fact that Applewhite may use the same method for book and tax purposes is irrelevant. Statement II is wrong.Statement III says that the cost of electricity for Applewhite's manufacturing facility is considered a fixed cost, even if the cost of the electricity has both variable and fixed components. The cost of the electricity would be considered a "mixed" cost, not a fixed cost. Statement III is wrong. SOLUTIONChoice "2" is correct.Costs that maintain production capacity and do not vary regardless of utilization are classified as fixed costs. In this instance, the salary costs of direct service staff are required to maintain capacity based on the number of residents (doctors) and will be incurred whether the facility is full or empty. The costs are fixed.Choice "1" is incorrect. Direct labor costs mandated by statute do not vary with production, they vary with the compliance requirement. Consequently direct labor costs, in this instance, are fixed, not variable.Choice "3" is incorrect. Direct costs related to service provider salaries are considered to be direct costs of the service, not overhead costs.Choice "4" is incorrect. Comprehensive Care Nursing Home is a service company and does not have any inventory and therefore no inventoriable costs. SOLUTIONChoice "3" is correct.The question asks what happens to variable and fixed costs when cost driver activity changes (i.e., when the cost driver level increases or decreases). Statement I says that, as the cost driver level increases, total fixed cost remains unchanged. Statement I is correct. Total fixed cost will remain unchanged regardless of changes in the cost driver because total fixed cost is unaffected by changes in the cost driver.Statement II says that, as the cost driver level increases, unit fixed cost increases. This statement is asking about unit fixed cost like the previous statement asked about total fixed cost. While total fixed cost will remain unchanged regardless of changes in the cost driver, unit fixed cost will not. If the cost driver level increases, total fixed cost will remain the same, but the total number of units will increase, and unit fixed cost will decrease, not increase. Statement II is incorrect. Statement III says that as the cost driver level decreases, unit variable cost decreases. This statement is asking about unit variable cost like the previous statement asked about unit fixed cost. Unit variable cost will remain unchanged regardless of what happens to the cost driver. Statement III is incorrect.
Under the absorption method, Year 1 Cost of Goods sold will be:
SOLUTIONChoice "d" is correct. Under the absorption method, Cost of Goods Sold is calculated by adding direct materials, direct manufacturing labor, variable manufacturing overhead, and fixed manufacturing overhead. Therefore, Cost of Goods Sold = $850,000 + $1,700,000 + $400,000 + $750,000 = $3,700,000.Choice "a" is incorrect. This calculation only takes into account direct materials and direct manufacturing labor. Choice "b" is incorrect. This calculation incorrectly excludes fixed manufacturing overhead. Choice "c" is incorrect. This calculation includes variable SG&A, but excludes fixed manufacturing overhead. 2-20 The following information was extracted from the accounting records of Roosevelt Manufacturing Company:
What was the cost of goods manufactured?
SOLUTIONExplanation Choice "2" is correct.In this question, the problem is to calculate the cost of goods manufactured. Certain cost data are provided. The problem assumes beginning and ending work in process is zero. The cost of goods manufactured is calculated as indicated below:
2-21 Computing and interpreting manufacturing unit costs. Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2017 are $150 million ($15 million of which are fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data (in millions) for July 2017 are as follows:
Required: SOLUTION(15 min.) Computing and interpreting manufacturing unit costs.1.
The total manufacturing cost per unit in requirement 1 includes $15 million of indirect manufacturing costs that are fixed irrespective of changes in the volume of output per month, while the remaining variable indirect manufacturing costs change with the production volume. Given the unit volume changes for August 2017, the use of total manufacturing cost per unit from the past month at a different unit volume level (both in aggregate and at the individual product level) will overestimate total costs of $532.09 million in August 2017 relative to the correct total manufacturing costs of $527.69 million calculated using variable manufacturing cost per unit times units produced plus the fixed costs of $15 million. Required:
SOLUTION(15 min.) Direct, indirect, fixed, and variable costs.Reinforcement cables—direct, variable Other direct materials—direct, variable Depreciation on formers—indirect, fixed (unless “units of output” depreciation, which then would be variable) Depreciation on mixing machines—indirect, fixed (unless “units of output” depreciation, which then would be variable) Rent on factory building—indirect, fixed Fire Insurance on factory building—indirect, fixed Factory utilities—indirect, probably some variable and some fixed (e.g., electricity may be variable but heating costs may be fixed) Finishing department hourly laborers—direct, variable (or fixed if the laborers are under a union contract) Mixing department manager—indirect, fixed Materials handlers—depends on how they are paid. If paid hourly and not under union contract, then indirect, variable. If salaried or under union contract, then indirect, fixed Custodian in factory—indirect, fixed Night guard in factory—indirect, fixed Machinist (running the mixing machine)—depends on how they are paid. If paid hourly and not under union contract, then indirect, variable. If salaried or under union contract, then indirect, fixed Machine maintenance personnel—indirect, probably fixed, if salaried, but may be variable if paid only for time worked and maintenance increases with increased production Maintenance supplies—indirect, variable Cleaning supplies—indirect, most likely fixed because the custodians probably do the same amount of cleaning every night Machinist (running the forming machine)—depends on how they are paid. If paid hourly and not under union contract, then indirect, variable. If salaried or under union contract, then indirect, fixed Of course the rubber, reinforcement cables and other direct materials will also be a direct cost of the Mixing Department, but it is already a direct cost of each kind of tire produced. Required: Classify each cost item (A–H) as follows: You will have two answers (D or I; V or F) for each of the following items: Cost ItemD or I V or FSOLUTION(15–20 min.) Classification of costs, service sector.Cost object: Each individual focus group Cost variability: With respect to the number of focus groups There may be some debate over classifications of individual items, especially with regard to cost variability.
Required: Classify each cost item (A–H) as follows: You will have two answers (D or I; V or F) for each of the following items:
SOLUTION(15–20 min.) Classification of costs, merchandising sector.Cost object: DVDs sold in movie section of store Cost variability: With respect to changes in the number of DVDs sold There may be some debate over classifications of individual items, especially with regard to cost variability.
Required: Classify each cost item (A–I) as follows: You will have two answers (D or I; V or F) for each of the following items:
SOLUTION(15–20 min.) Classification of costs, manufacturing sector.Cost object: Type of chair assembled (Recliners or Rockers) Cost variability: With respect to changes in the number of Recliners assembled There may be some debate over classifications of individual items, especially with regard to cost variability.
Plan A: Pay 10 cents per minute of long-distance calling. Plan B: Pay a fixed monthly fee of $15 for up to 240 long-distance minutes and 8 cents per minute thereafter (if she uses fewer than 240 minutes in any month, she still pays $15 for the month).
Required: SOLUTION
$15 + $0.08 (y – 240) = $22 Plant management costs, $1,992,000 per year Cost of leasing equipment, $1,932,000 per year Workers’ wages, $800 per Surfer vehicle produced Direct materials costs: Steel, $1,400 per Surfer; Tires, $150 per tire, each Surfer takes 5 tires (one spare). City license, which is charged monthly based on the number of tires used in production:
Consolidated currently produces 170 vehicles per month. Required: SOLUTION(15–20 min.) Variable costs and fixed costs.
Fixed manufacturing costs per month
Fixed costs per month (1 surfer takes 5 tires)
2. The concept of relevant range is potentially relevant for both graphs. However, the question does not place restrictions on the unit variable costs. The relevant range for the total fixed costs is from 0 to 100 surfers; 101 to 200 surfers; more than 200 surfers. Within these ranges, the total fixed costs do not change in total.
The unit cost for 80 vehicles produced per month is $7,538, while for 205 vehicles it is only $5,764. This difference is caused by the fixed cost increment of $209,830 (an increase of 50%, $209,830 ÷ $367,040 = 57%) being spread over an increment of 125 (205 – 80) vehicles (an increase of 156%, 125 ÷ 80). The fixed cost per unit is therefore lower. Gummy Land currently makes and sells 3,900 jaw-breakers per month. Gummy Land buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 40¢ per jaw-breaker. Next year Gummy Land expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same. Required: What is the annual variable manufacturing cost? SOLUTION(20 min.) Variable costs, fixed costs, relevant range.The variable costs, the materials, are 40 cents per jaw breaker, or $18,720 ($0.40 per jaw breaker × 3,900 jaw breakers per month × 12 months) for the year. Assume the second machine costs $6,500 and is depreciated using straight-line depreciation over 10 years and zero residual value, just like the first machine. This will add $650 of depreciation per year. Fixed costs for next year will increase to $15,700 from $15,050 for the current year + $650 (because rent and other fixed overhead costs will remain the same at $14,400). That is, total fixed costs for next year equal $650 (depreciation on first machine) + $650 (depreciation on second machine) + $14,400 (rent and other fixed overhead costs). The variable cost per jaw breaker next year will be 90% × $0.40 = $0.36. Total variable costs equal $0.36 per jaw breaker × 93,600 jaw breakers = $33,696. If Gummy Land decides not to increase capacity and meet only that amount of demand for which it has available capacity (5,000 jaw breakers per month or 5,000 × 12 = 60,000 jaw breakers per year), the variable cost per unit will be the same at $0.40 per jaw breaker. Annual total variable manufacturing costs will increase to $0.40 × 5,000 jaw breakers per month × 12 months = $24,000. Annual total fixed manufacturing costs will remain the same, $15,050. During the process of product development, production, marketing, distribution, and customer service, TTC has kept track of the following cost drivers: Number of smartphones shipped by TTC Number of design changes Number of deliveries made to cell phone companies Engineering hours spent on initial product design Hours spent researching competing market brands Customer-service hours Number of smartphone orders processed Machine hours required to run the production equipment Required: SOLUTION(20 min.) Cost drivers and value chain.Market the new design to cell phone companies—Marketing Manufacture the TTC smartphone—Production Process orders from cell phone companies—Distribution Deliver the TTC smartphones to the cell phone companies—Distribution Provide online assistance to cell phone users for use of the TTC smartphone—Customer service Make design changes to the TTC smartphone based on customer feedback—Design of products and processes
Required: SOLUTION(10–15 min.) Cost drivers and functions. 1.
Trainer: $11,000 per session Materials: $2,500 per session and $35 per attendee Catering Costs (subcontracted): Food: $75 per attendee Setup/cleanup: $25 per attendee Fixed fee: $5,000 per training session National Training is pleased with the service they use for the catering and have allowed them to place brochures on each dinner table as a form of advertising. In exchange, the caterer gives National Training a $1,000 discount per session. Required: SOLUTION(20 min.) Total costs and unit costs
1.
As shown in the table above, for 100 attendees the total cost will be $31,000, and the cost per attendee will be $310.00. Alternatively, National Training could charge a flat fee of $20,000 plus $150 per attendee. This would provide a margin of $15.00 per guest plus a $2,500 markup on the fixed costs. At 100 attendees, profit would be $4,000 ($2,500 on fixed costs + ($15.00 × 100 attendees)). At 175 attendees, profit would be $5,125 ($2,500 on fixed costs + ($15.00 × 175 attendees)). Required: SOLUTION(25 min.) Total and unit cost, decision making.1. Note that the production costs include the $28,000 of fixed manufacturing costs but not the $10,000 of period costs. The variable cost is $1 per flange for materials, and $2.80 per flange ($28 per hour divided by 10 flanges per hour) for direct manufacturing labor for a total of $3.80 per flange. $3.80 × 5,000 + $28,000 = $47,000 Average (unit) cost = $47,000 ÷ 5,000 units = $9.40 per unit. This is below Flora’s selling price of $10 per flange. However, in order to make a profit, Gayle’s Glassworks also needs to cover the period (non-manufacturing) costs of $10,000, or $10,000 ÷ 5,000 = $2 per unit. Thus total costs, both inventoriable (manufacturing) and period (non-manufacturing), for the flanges is $9.40 + $2 = $11.40. Gayle’s Glassworks cannot sell below Flora’s price of $10 and still make a profit on the flanges.
Gayle’s Glassworks cannot sell below $10 per flange and make a profit. At Flora’s price of $10 per flange, the company has an operating loss of $7,000. Average (unit) inventoriable (manufacturing) cost will be $66,000 ÷ 10,000 units = $6.60 per flange Unit total cost including both inventoriable and period costs will be ($66,000 + $10,000) ÷ 10,000 = $7.60 per flange, and Gayle’s Glassworks will be able to sell the flanges for less than Flora’s price of $10 per flange and still make a profit.
Gayle’s Glassworks can sell at a price below $10 per flange and still make a profit. The company earns operating income of $24,000 at a price of $10 per flange. The company will earn operating income as long as the price exceeds $7.60 per flange. The reason the unit cost decreases significantly is that inventoriable (manufacturing) fixed costs and fixed period (non-manufacturing) costs remain the same regardless of the number of units produced. So, as Gayle’s Glassworks produces more units, fixed costs are spread over more units, and cost per unit decreases. This means that if you use unit costs to make decisions about pricing, and which product to produce, you must be aware that the unit cost only applies to a particular level of output. Required: SOLUTION(20–30 min.) Inventoriable costs versus period costs.Merchandising-sector companies purchase and then sell tangible products without changing their basic form. Service-sector companies provide services or intangible products to their customers—for example, legal advice or audits. Only manufacturing and merchandising companies have inventories of goods for sale. Marketing, distribution, and customer-service costs $ 37,000
Required: SOLUTION(20 min.) Computing cost of goods purchased and cost of goods sold.
2-35 Cost of goods purchased, cost of goods sold, and income statement. The following dataare for Arizona Retail Outlet Stores. The account balances (in thousands) are for 2017.
Required: (20 min.) Cost of goods purchased, cost of goods sold, and income statement.1a.Arizona Retail Outlet Stores Schedule of Cost of Goods Purchased For the Year Ended December 31, 2017
Schedule of Cost of Goods Sold For the Year Ended December 31, 2017 (in thousands)
2-36 Flow of Inventoriable Costs. Renka’s Heaters selected data for October 2017 are presented here (in millions):
Required: Calculate the following costs: SOLUTION
Required: SOLUTION(30–40 min.) Cost of goods manufactured, income statement, manufacturing company.1. Peterson Company Schedule of Cost of Goods Manufactured Year Ended December 31, 2017 (in thousands)
Income Statement Year Ended December 31, 2017 (in thousands)
2-38 Cost of goods manufactured, income statement, manufacturing company. Consider the following account balances (in thousands) for the Carolina Corporation:
Required: SOLUTION(30–40 min.) Cost of goods manufactured, income statement, manufacturing company. Carolina Corporation Schedule of Cost of Goods Manufactured Year Ended December 31, 2017 (in thousands)
Carolina Corporation Income Statement Year Ended December 31, 2017 (in thousands)
2-39 Income statement and schedule of cost of goods manufactured. The Howell Corporation has the following account balances (in millions):
Required: Prepare an income statement and a supporting schedule of cost of goods manufactured for the year ended December 31, 2017. (For additional questions regarding these facts, see the next problem.) SOLUTION(25–30 min.) Income statement and schedule of cost of goods manufactured.Howell Corporation Income Statement for the Year Ended December 31, 2017 (in millions)
Howell Corporation Schedule of Cost of Goods Manufactured for the Year Ended December 31, 2017 (in millions)
2-40 Interpretation of statements (continuation of 2-39).Required: SOLUTION(15–20 min.) Interpretation of statements (continuation of 2-39).Schaeffer’s manufacturing costing system uses a three-part classification of direct materials, direct manufacturing labor, and manufacturing overhead costs.
Required: Prepare an income statement and a supporting schedule of cost of goods manufactured. (For additional questions regarding these facts, see the next problem.) SOLUTION(25–30 min.) Income statement and schedule of cost of goods manufactured.Schaeffer Corporation Income Statement for the Year Ended December 31, 2017 (in millions)
Schaeffer Corporation Schedule of Cost of Goods Manufactured for the Year Ended December 31, 2017 (in millions)
2-42 Terminology, interpretation of statements (continuation of 2-41).Required: SOLUTION(15–20 min.) Terminology, interpretation of statements (continuation of 2-36).
During December David worked the following hours:
Included in the total hours worked are two company holidays (Christmas Eve and Christmas Day) during Week 4. All overtime worked by David was Monday–Friday, except for the hours worked in Week 3; all of the Week 3 overtime hours were worked on a Saturday. Required: SOLUTION(20 min.) Labor cost, overtime and idle time.
Overtime premium caused by the heavy overall volume of work is also an indirect cost because it is not related to a particular job that happened to be worked on during the overtime hours. If, however, the overtime is the result of a demanding “rush job,” the overtime premium is a direct cost of that job. For the previous month (March 2017) Ron was able to piece together the following information:
Calculate the cost of: Required: SOLUTION(30–40 min.) Missing records, computing inventory costs.This problem is not as easy as it first appears. These answers are obtained by working from the known figures to the unknowns in the schedule below. The basic relationships between categories of costs are:
= $420,000 – $330,000 = $90,000 Cost of goods manufactured = Direct Materials Used × 4 = $90,000 × 4 = $360,000
Some instructors may wish to place the key amounts in a Work in Process T-account. This problem can be used to introduce students to the flow of costs through the general ledger (amounts in thousands):
2-45 Comprehensive problem on unit costs, product costs. Atlanta Office Equipment manufactures and sells metal shelving. It began operations on January 1, 2017. Costs incurred for 2017 are as follows (V stands for variable; F stands for fixed):
Variable manufacturing costs are variable with respect to units produced. Variable marketing, distribution, and customer-service costs are variable with respect to units sold. Inventory data are as follows:
Production in 2017 was 100,000 units. Two pounds of direct materials are used to make one unit of finished product. Revenues in 2017 were $473,200. The selling price per unit and the purchase price per pound of direct materials were stable throughout the year. The company’s ending inventory of finished goods is carried at the average unit manufacturing cost for 2017. Finished-goods inventory at December 31, 2017, was $20,970. Required: SOLUTION(30 min.) Comprehensive problem on unit costs, product costs.2. Manufacturing Costs for 100,000 units
4. Atlanta Office Equipment Income Statement Year Ended December 31, 2017 (in thousands)
SOLUTION(15 min.) Different meanings of product costs
2-47 Cost classification; ethics. Paul Howard, the new plant manager of Garden Scapes Manufacturing Plant Number 7, has just reviewed a draft of his year-end financial statements. Howard receives a year-end bonus of 11.5% of the plant’s operating income before tax. The year-end income statement provided by the plant’s controller was disappointing to say the least. After reviewing the numbers, Howard demanded that his controller go back and “work the numbers” again. Howard insisted that if he didn’t see a better operating income number the next time around he would be forced to look for a new controller. Garden Scapes Manufacturing classifies all costs directly related to the manufacturing of its product as product costs. These costs are inventoried and later expensed as costs of goods sold when the product is sold. All other expenses, including finished-goods warehousing costs of $3,640,000, are classified as period expenses. Howard had suggested that warehousing costs be included as product costs because they are “definitely related to our product.” The company produced 260,000 units during the period and sold 240,000 units. As the controller reworked the numbers, he discovered that if he included warehousing costs as product costs, he could improve operating income by $280,000. He was also sure these new numbers would make Howard happy. Required: SOLUTION(20-25 min.) Classification of costs; ethics.Units produced $3,640,000 $14 per unit. If the $3,640,000 is treated as period costs, the entire amount would be expensed during the year as incurred. If it is treated as a product cost, it would be “unitized” at $14 per unit and expensed as each unit of the product is sold. Therefore, if only 240,000 of the 260,000 units are sold, only $3,360,000 ($14 per unit × 240,000 units) of the $3,640,000 would be expensed in the current period. The remaining $3,640,000 – $3,360,000 = $280,000 would be inventoried on the balance sheet until a later period when the units are sold. The value of finished goods inventory can also be calculated directly to be $280,000 ($14 per unit × 20,000 units).
SOLUTION(20–25 min.) Finding unknown amounts.
For case 1, do steps 1, 2, and 3 in order. For case 2, do steps 1, 3, and then 2. Try It 2-1 SolutionThe following table shows the total costs of gasoline and insurance and the cost per mile if the truck is driven (a) 20,000 miles and (b) 30,000 miles.
Try It 2-2 SolutionWe first calculate the cost of direct materials used and then total manufacturing costs incurred in 2017. The cost of direct materials used is:
Total manufacturing costs incurred refers to all direct manufacturing costs and manufacturing overhead costs incurred during 2017 for all goods worked on during the year. Diana Corporation classifies its manufacturing costs into the three categories described earlier.
Try It 2-3 SolutionThe cost of goods manufactured in 2017 for Diana Corporation is calculated as follows:
How does the variable cost per unit change as the level of activity increases?Variable costs: A variable cost increases or decreases as volume of activity increases or decreases. On a per unit basis, a variable cost per unit remains constant but the total amount of variable cost changes with the level of production.
Does variable cost changes with the level of activity?Variable costs have two main characteristics: (a) The total cost varies in proportion to changes in the level of activity (b) The cost per unit remains constant, regardless of the activity level.
What will happen if there is a change in the level of cost driver?fixed costs per unit will change and variable costs per unit will remain the same.
How total variable costs and unit variable costs behave with changes to the level of activity?The total variable costs changes proportionately with respect to the changes in the level of activity. However, the unit variable costs remains constant irrespective to the changes in the level of activity.
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How does the variable cost per unit change as the level of activity or cost driver increases Why?
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