Analyzing the effects of overhead costs The Comstock Cosmetics Company manufactures a complete line of fine cosmetics. A new line of products is designed to satisfy the most discrimi- nating customers. An important item in the new line is an expensive facial cream. In order to keep the price close to that of competitors' products of similar quality, a careful cost analysis was done. The current price is $12.00 per jar, which is 150 percent of the product's estimated manufactured cost. Data accumulated on first-year sales and production costs indicate that overhead costs were significantly higher than estimated. Below are estimated and actual cost data for the production of the cream.

The company estimated first year sales of the cream of 40,000 jars. Actual sales for the first year were 56,000 jars. Variable costs associated with marketing the product are $78,400.

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Unit Costs Original Actual Estimate Cost Direct materials.... $4.50 $4.30 Direct labor... 1.50 1.60 Manufacturing overhead 2.00 3.50 Total cost... $8.00 $9.40