The cost of products and services consist of at least one or more of three elements of cost: Direct Materials, Direct Labor, and Manufacturing Overhead Costs. Direct materials consist of all those materials that are economically significant can be directly traced to the product. Therefore, there are certain material costs that are not classified as Direct Materials such as screws, nuts, rivets, paints though they can be directly traced to a product they are not economically significant. Direct labor consists of payroll expenses for workers who are directly and physically involved with the process of production. Therefore, cost of office personnel, janitors, forement and other managers involved with production are not classified as direct labor. Within the production facility, therefore, any costs incurred to facilitate production that cannot be classified as Direct Material or Direct Labor is classified as overhead. This includes such expenditures as security, landscaping, property taxes, depreciation ( buildings, equipment), salaries for supervisor's, janitors, clerical, etc.
All products must carry their fair share of all costs, i.e. Materials, Labor and overhead. The problem that follows addresses issues related to product cost.
Abel Furniture has determined the following Unit production costs for a table:
Direct Materials $10
Direct Labor $12
Indirect Materials $4
Indirect Labor $3
Fixed MOH $5
Expected level of output 10,000 units
Relevant Range 5,000 to 15,000
Fixed MOH per unit is calculated at the expected level of output of 10,000 units.
Required:
1. Determine the total Fixed MOH
2. What is the total variable costs per table?
3. What is the total Variable MOH per table?
4. Calculate the total variable costs at the expected level of output of 10,000
5 Calculate the cost per unit or table at 10,000 units of output.
6. If the firm were to produce 15,000 units, what is the Fixed MOH at this level?
7. What is the total variable cost per unit (table) at 15,000 units of output?