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

Exercise 52

Basic Concepts

Terracotta, Inc., provides you with the following data for their single product:

Sales price per unit	$ 50
Fixed costs (per month):
Selling. general. and administrative (SG&A) unit	600.000
Manufacturing overhead	2.100.000
Variable costs (per unit):
Direct labor	8
Direct materials	13
Manufacturing overhead	10
SG&A	5
Number of units produced per month	300.000 units

Required

Give the amounts for each of the following:

a. Prime cost per unit.

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b. Contribution margin per unit.

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c. Gross margin per unit.

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d. Conversion cost per unit.

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e. Variable cost per unit.

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f. Full absorption cost per unit.

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g. Variable production cost per unit.

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h. Full cost per unit.

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i. Suppose the number of units increases to 400,000 units per month, which is within the relevant range, which of amounts (a) through (h) will change. For each that will change, give the new amount for a volume of 400,000 units.

Step 1 of 23

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.