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

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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?

Answer:

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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