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Chapter 21: Q-21-7RQ (page 1166)

Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.

Short Answer

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Answer

Fixed manufacturing overhead cost per unit changes with a change in the number of units because total fixed cost remains constant and fixed manufacturing overhead cost per unit has an inverse relation with the number of units.

Step by step solution

01

Fixed manufacturing overhead

Fixed manufacturing overheads are the sunk cost to the company which remains constant in total and do not show deviation in total with the change in production level.

02

Why does the fixed manufacturing overhead cost per unit change when there is a change in the number of units produced.

The fixed manufacturing overhead cost per unit changes with change in number of units produced because fixed manufacturing overhead remains constant in total and fixed manufacturing overhead cost per unit has an inverse relation with the number of units.

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Most popular questions from this chapter

Using variable costing, service company

Professional Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee鈥檚 territory as a business segment. The company incurs variable costs that include the employees鈥� wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of July:

Requirements

  1. Calculate the contribution margin ratio for each business segment.
  2. The business segments had the following numbers of customers: Birman, 60; Meech, 70; and Frond, 40. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.
  3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?

Calculating contribution margin and operating income, variable costing

Calculate the contribution margin and operating income for June using variable costing.

Use the following information for Short Exercises S21-4 and S21-5.

Dracut Company reports the following information for June:

Net Sales Revenue $ 755,000 Variable Cost of Goods Sold 240,000 Fixed Cost of Goods Sold 198,000 Variable Selling and Administrative Costs 168,000 Fixed Selling and Administrative Costs 79,000

When units produced exceed units sold, how does operating income differ between variable costing and absorption costing? Why?

Classifying costs Classify each cost by placing an X in the appropriate columns. The first cost is completed as an example.

Absorption Costing Variable Costing Product Cost Period Cost Product Cost Period cost

  1. Direct materials
  2. Direct labor
  3. Variable manufacturing overhead
  4. Fixed manufacturing overhead
  5. Variable selling and administrative costs
  6. Fixed selling and administrative cost

Analyzing profitability

Relative Furniture Company manufactures and sells oak tables and chairs. Price and cost data for the furniture follow:

Tables Chairs

Sales Price \( 1,400 \) 50

Variable manufacturing costs 1,148 21

Sales commission (8%) 112 4

Relative Furniture has three sales representatives: Abe, Brett, and Corrin. Abe sold 50 tables with 4 chairs each. Brett sold 110 tables with 6 chairs each. Corrin sold 90 tables with 8 chairs each.

Requirements:

  1. Calculate the total contribution margin and the contribution margin ratio for each sales representative (round to two decimal places).
  2. Which sales representative has the highest contribution margin ratio? Explain why.
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