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Selected account balances for the year ended December 31 are provided below for BFun Company: Sales revenue.......................................................... $1,000,000 Selling and administrative salaries.............................. $110,000 Purchases of

Selected account balances for the year ended December 31 are provided below for BFun Company:

Sales revenue.......................................................... $1,000,000

Selling and administrative salaries.............................. $110,000

Purchases of raw materials......................................... $290,000

Direct labor............................................................................ ?

Advertising expense..................................................... $80,000

Manufacturing overhead............................................ $270,000

Sales Commissions....................................................... $50,000

Inventory balances at the beginning and end of the year were as follows:

Beginning of End of

the Year the Year

Raw materials $40,000 $10,000

Work in process ? $35,000

Finished goods $50,000 ?

The total manufacturing costs for the year were $683,000; the goods available for sale totaled $740,000; and the cost of goods sold totaled $660,000.

The company would like to use the financial and management information above to forecast revenues and expenses for different levels of sales volume. In order to perform the analysis below, assume that the number of units sold is equal to the number of units produced. In other words, there are no units in process or finished goods inventory.

  1. Assume that the dollar amounts given above are for the equivalent of 40,000 units produced and sold during the year. Calculate the following:
    1. Average material cost per unit
    2. Average labor cost per unit
    3. Average manufacturing overhead per unit
    4. Average total cost per unit

  1. Assume that in the following year the company expects to produce and sell 50,000 units and manufacturing overhead is fixed. Remember, direct materials and direct labor are variable costs. Calculate the following:
    1. Average material cost per unit and total material cost
    2. Average labor cost per unit and total labor cost
    3. Average manufacturing overhead per unit and total manufacturing overhead cost
    4. Average total cost per unit

  1. As the manager in charge of production costs, explain to the president of the company the reason for any difference in average total cost per unit between (3d) and (4d) above.

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