Problem:
Springfield Manufacturing produces electronic storage devices, and uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and indirect manufacturing costs. Total indirect manufacturing costs for January were $300 million, and were allocated to each product on the basis of direct manufacturing labor costs of each line. Summary data (in millions) for January for the most popular electronic storage device, the Big Bertha, was:
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Big Bertha
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Direct materials costs
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$9,000,000
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Direct manufacturing labor costs
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$3,000,000
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Indirect manufacturing costs
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$8,500,000
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Units produced
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40,000
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Required:
A. Compute the manufacturing cost per unit for each product produced in January.
B. Suppose production will be reduced to 30,000 units in February. Speculate as to whether the unit costs in February will most likely be higher or lower than unit costs in January; it is not necessary to calculate the exact February unit cost. Briefly explain your reasoning.