# Solved Question: Tangshang Industries production budget from the 2nd quarter of 2018

## Description

Question:

Tangshang Industries production budget from the 2nd quarter of 2018, projected the following amounts of units to be produced:

April    1,000 units

May     1,200 units

June     1,250 units

Each unit requires 2 parts of component A and 3 parts of component B. Component A cost is \$1.25 per unit and component B cost is \$.80 per unit.

Each unit requires the following labor:

2 hours in the processing department

1 hour in the assembly department

Processing department labor rate is \$4/hour

Assembly department labor rate is \$6/hour

Variable Factory overhead is \$.60 per unit

Fixed Factory overhead is \$1,000 monthly

Using the information from the production budget of Tangshang Industries

1.Calculate total product cost per unit for the quarter April – June 2018

2.If the sale price is \$32.50, what will be the Gross Profit per unit?

3.If the sale price is \$32.50 for the units produced during the quarter, what will be the Total Gross Profit?

1. Total product cost per unit will be calculated as follow;

 April May June Number of units 1000 1200 1250 Component cost per unit \$4.90 \$4.90 \$4.90 Total component costs \$4900 \$5880 \$6125 Labor cost per unit \$14 \$14 \$14 Total labor costs \$14000 \$16800 \$17500 Variable factory overhead per unit \$0.60 \$0.60 \$0.60 Total variable factory overhead \$600 \$720 \$750 Fixed Factory overhead \$1000 \$1000 \$1000 Total product cost (Component costs + Labor costs + Variable factory overhead + Fixed factory overhead) \$20500 \$24400 \$25375 Total product cost per unit (Total product cost / Number of units) \$20.50 \$20.33 \$20.30

Working Note;

1. Following component cost will be for one unit = (2 * \$1.25) + (3 * \$0.80) = \$4.90

2. Per unit labor cost for processing department will be calculated as follow;

(2 hours * \$4) = \$8 per unit

Per unit labor cost for assembly department will be calculated as follow;

(1 hours * \$6) = \$6 per unit

Thus total labor cost per unit (\$8 + \$6) = \$14 per unit

2. If the sale price is \$32.50, what will be the Gross Profit per unit?

 April May June Sale price per unit \$32.50 \$32.50 \$32.50 Less: Product cost per unit \$20.50 \$20.33 \$20.30 Gross profit per unit \$12 \$12.17 \$12.20

3. If the sale price is \$32.50, what will be the Total Gross Profit?

 April May June Sale price per unit \$32.50 \$32.50 \$32.50 Less: Product cost per unit \$20.50 \$20.33 \$20.30 Gross profit per unit \$12 \$12.17 \$12.20 Number of units 1000 1200 1250 Total gross profit (Per unit gross profit * Number of units) \$12000 \$14604 \$15250

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