The following manufacturing costs were incurred by the Trinitram Company in 2019: Direct materials$112,500 Direct labor 175,000 Manufacturing overhead 235,000 These costs were incurred to produce 25,000 units of product. Variable manufacturing overhead was 80% of the direct materials cost.In 2020, the direct material and variable overhead costs per unit will increase by 15%, but the direct labor costs per unit are not expected to change. Fixed manufacturing costs are expected to increase by 7.5%.Required:(a.) Prepare a cost estimate for an activity level of 20,000 units of product in 2020.(b.) Determine the total product costs per unit for 2019 and 2020.
What will be an ideal response?
(a.)
Variable overhead costs (2019) = 0.80 ($112,500) = $90,000
Fixed overhead costs (2019) = $235,000 - $90,000 = $145,000
| 2019 2020 |
| Direct materials | $ | 112,500 $103,500 (1) |
| Direct labor | 175,000 140,000 (2) |
| Variable overhead costs | 90,000 82,800 (3) |
| Fixed overhead costs | 145,000 155,875 (4) |
| Total | $ | 522,500 $482,175 |
(2) ($175,000/25,000) (20,000) = $140,000.
(3) [($90,000/25,000) (1.15)] (20,000) = $82,800.
(4) ($145,000) (1.075) = $155,875.
(b.)
2019 unit cost: $522,500 / 25,000 = $20.90; 2020 unit cost: $482,175/20,000 = $24.11
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