Lurvey, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31,2014.
|Direct materials||All variable||$350,000|
|Direct manufacturing labor||All variable||280,000|
|Supervision labor||15% variable||70,000|
|Materials-handling labor||60% variable||52,500|
|Maintenance labor||50% variable||70,000|
|Rent, property taxes, and administration||0% variable||
Lurvey, Inc., produced 70, 000 units of product in 2014. Lurvey’s management is estimating costs for 2015 on the basis of 2014 numbers. The following additional information is available for 2015
|a.||Direct materials prices in 2015|
are expected to increase by 4% compared with 2014
|b.||Under the terms of the labor contract, direct manufacturing labor wage rates are expected to increase by 4|
% in 2015 compared with 2014
|c.||Power rates and wage rates for supervision, materials handling, and maintenance are not expected to change from 2014|
|d.||Depreciation costs are expected to increase by 8|
%, and rent, property taxes, and administration costs are expected to increase by 9
expects to manufacture and sell 80,000 units in 2015.
1.) Prepare a schedule of variable, fixed, and total manufacturing costs for each account category in 2015. Estimate total manufacturing costs for 2015.
2.) Calculate Lurvey’s total manufacturing cost per unit in 2014, and estimate total manufacturing cost per unit for 2015.
3.) How can you obtain better estimates of fixed and variable costs? Why would these better estimates be useful to Lurvey?