Unit Product Cost Question Accounting Need Help

Question

The Culver Company makes a single product. Its estimated costs, by quarter, for the coming year are given below :

First

Direct Materials 200,000

Direct Labor : 95,000

Manufacturing costs : 240,000

Total Manufacturing Costs (a) : 535,000

Number of Units to Be Produced(b) : 80,000

Estimated Unit Product Costs (a/b) : $6.69

Second

Direct Materials : 110,000

Direct Labor : 50,000

Manufacturing Overhead : 205,000

Total Manufacturing Costs (a) : 365,000

Number of Units to be Produced (b) : 40,000

Estimated Unit Product Costs : (a/b) : $9.13

Third

Direct Materials : $80,000

Direct Labor : $25,000

Manufacturing Overhead : $180,000

Total Manufacturing Costs (a) : 285,000

Number of Units to be Produced (b) : 20,000

Estimated Unit Product Costs (a/b) : $14.25

Fourth

Direct Materials : 180,000

Direct Labor : 70,000

Manufacturing Overhead : ?

Total Manufacturing Costs (a) : ?

Number of Units to be Produced(b) : 85,000

Estimated Unit Product Costs (a/b) : ?

 

Question : The unit product cost for the fourth quarter should be (rounded):

A) $10.60 per unit B) $9.20 per unit C) $5.82 per unit D) $7.83 per unit E) Correct Answer Not Listed

Answer was C) but I need help with steps as to how.

 

Answer 1

To solve this question you need to use the High-Low Method to estimate the manufacturing overhead cost.

First you set up the formula:

Variable Manufacturing Overhead Cost=

(High Manufacturing Overhead Cost-Low Manufacturing Overhead Cost)/(High Units-Low Units)

In this case that is (240,000-180,000)/(80,000-20,000)=60,000/60,000=$1 per unit

You then use this to find the fixed manufacturing overhead cost:

Total Manufacturing Overhead Cost=Fixed Manufacturing Overhead Cost+Variable Manufacturing Overhead Cost

180,000=Fixed Manufacturing Overhead Cost+1*20,000=Fixed Manufacturing Overhead Cost+20,000

Fixed Manufacturing Overhead Cost=160,000

Then you use these numbers to find the manufacturing overhead cost in the fourth quarter.

85,000*1+160,000=245,000

Then you add everything together to get total manufacturing cost and then divide by number of units.

180,000+70,000+245,000=495,000

495,000/85,000=5.82