Account analysis method. Gower, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2009.

Gower, Inc., produced 75,000 units of product in 2009. Gower’s management is estimating costs for 2010 on the basis of 2009 numbers. The following additional information is available for 2010.

a. Direct materials prices in 2010 are expected to increase by 5% compared with 2009.

b. Under the terms of the labor contract direct manufacturing labor wage rates are expected to increase by 10% in 2010 compared with 2009.

c. Power rates amt wage rates for supervision, materials handling and maintenance are not expected to change from 2009 to 2010.

d. Depreciation costs are expected to increase by 5% and rent, property taxes, and administration costs are expected to increase by 7%.

1. Prepare a schedule of variable, fixed, and total manufacturing costs for each account category in 2010. Estimate total manufacturing costs for 2010.

2. Calculate Gower’s total manufacturing cost per unit in 2009, and estimate total manufacturing cost per unit in 2010.

3. How can you obtain better estimates of fixed and variable costs? Why would these better estimates be useful to Gower?

Transcribed Image Text:

Amount Account Direct materials Direct manufacturing labor Power Supervision labor Materials-handling ilabor Maintenance labor Depreciation Rent, property taxes, and administration Classification All variablė All variable All variable 20% variable 50% variable 40% variable 0% variable 0% variable $300,000 225,000 37,500 56,250 60,000 75,000 95,000 100,000