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

Exercise 16

Cost Concepts

Princeton Fabrication, Inc., produced and sold 1,200 units of the company’s only product in March. You have collected the following information from the accounting records:

Sales price (per unit)	$ 896
Manufacturing costs:
Fixed overhead (for the month)	100,800
Direct labor (per unit)	70
Direct materials (per unit)	224
Variable overhead (per unit)	140
Marketing and administrative costs:
Fixed costs (for the month)	134,400
Variable costs (per unit)	28

Required

a. Compute:

1. Variable manufacturing cost per unit.

2. Full cost per unit.

3. Variable cost per unit.

4. Full absorption cost per unit.

5. Prime cost per unit.

6. Conversion cost per unit.

7. Profit margin per unit.

8. Contribution margin per unit.

9. Gross margin per unit.

---

b. If the number of units decreases from 1,200 to 800, which is within the relevant range, will the fixed manufacturing cost per unit increase, decrease, or remain the same? Explain.

Step 1 of 25

Variable cost

Variable costs are cost which varies with number of units produced or sold. Variable cost per unit remains same however total variable costs varies with volume of activity. Total variable cost is calculated as variable cost per unit multiplied by number of units produced.