Product Cost Budget. The management of Ingham Glass Products is aware of increased competition in the industry and has taken steps to improve cost control. Product costs on a per unit basis for last year are as follows:

The direct materials are manufactured by another division of the company, which agreed to lower its price by 10 percent for this year. Direct labor cost will increase from $12 to $15 an hour, but increased productivity is planned. The revision of the production process will make it possible to manufacture 6 units of Red per hour, 8 units of White, or 10 units of Blue. Fixed overhead cost will, however, increase by $100,000 a year.
This year’s planned volumes are the same as last year’s actual output. Last year the company operated at a normal activity level set at 200,000 direct labor hours with budgeted and actual factory overhead costs of $2,400,000. This year, normal activity is to be reset at 150,000 direct labor hours with factory overhead amounting to $2,100,000 (including the fixed overhead increase).
Required:
1. Determine the cost of production this year in total and on a per unit basis.
2. Compute the expected cost savings in total. Comment on the impact of the changes.

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Product Lines Red White Blue Direct materials. $ 6 $3 $5 Direct labor... 3 2 3 Applied factory overhead. 3 2 3 Total unit cost $12 $7 $11 Units produced last year.. 300,000 240,000 340,000