Cost Formula Princeton Manufacturing Company summarizes the following total cost
ID: 341531 • Letter: C
Question
Cost Formula Princeton Manufacturing Company summarizes the following total cost data for the month of March, Princeton has a equal normal capacity of production Direct material Direct labor Variable overhead Fixed overhead (Note 1) Selling expense (Note 2) Finish attempt... normal capacity per month of 25,000 units of product that sell for $40 each. For the foreseeable future, sales volume should verview of erial Accounting $295,000 165,000 85,000 140,000 80,000 anagerial ting Concepts and ost Accounting s: Job Order $821,00D ost Accounting s: Process Costing 1. Beyond normal capacity, fixed overhead cost increases $6,350 for each 1,000 units or fraction thereof until a maximum capacity of 30,000 units is reached. 2. Selling expenses are a 5% sales commission plus shipping costs of$1.20 per unit. a. Using the information available, prepare a formula to estimate Princeton's total cost at varbus production volumes up to normal capacity ost-Volume- Total cost-S 196,000 +$ 25 x#of units. b. Prove your answer in requirement (a) relative to the total cost figure for 25,000 units. ariable Costing: A r Decision Making Fixed cost Variable cost 196,000 625,000 Total cost 821,000 elevant Costs and erm Decision c. Calculate the planned total cost at 20,000 units. $ 696,000 d. If Princeton were operating at normal capacity and accepted an order for 500 more units, what would it have to charge for the order to earn a net income before income tax of $8 per unit on the new sale? Required selling price s 45.7 x per unit Standard Costing riance AnalysisExplanation / Answer
d.
If the order for 500 more units is accepted, fixed overhead costs will increase by $6,350.
Calculate total cost per unit for the order excluding sales commission as follows:
Calculate required selling price per unit for the order as follows:
Required selling price per unit
= Total cost per unit excluding sales commission + Sales commission + desired income before taxes
= $35.70 + (Required selling price per unit x 10%) + $8
= $43.70 + (Required selling price per unit x 10%)
Thus,
Required selling price per unit = $43.70 + (Required selling price per unit x 10%)
Or,
Required selling price per unit x 90% = $43.70
Therefore,
Required selling price = $43.70/0.9 = $48.55 or $48.60 (rounded up)
Note:
Administrative cost has not been considered in calculating the selling price per unit of the new sale because it will not get affected if the order is accepted.
Calculation Amount Direct materials cost per unit =295000/25000 11.8 Direct labor cost per unit =165000/25000 6.6 Variable overhead per unit =85000/25000 3.4 Fixed overhead per unit =6350/500 12.7 Shipping cost per unit 1.2 1.2 Total cost of one unit excluding sales commission =11.8+6.6+3.4+12.7+1.2 35.70