Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 23

Methods of Estimating Costs: Account Analysis

The accounting records for Miller Fixtures report the following production costs for the past year:

Direct materials	$210,000
Direct labor	175,000
Variable overhead	154,000

Production was 210,000 units. Fixed manufacturing overhead was $240,000.

For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent, excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by 10 percent. Variable manufacturing overhead per unit is expected to remain the same.

Required

a. Prepare a cost estimate for a volume level of 220,000 units of product this year.

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b. Determine the costs per unit for last year and for this year.

Step 1 of 6

Variable costs

Variable costs are the costs which varies with the output of quantity produced that is if the number of units produced increases then the variable cost would also increase.