Gower Inc a manufacturer of plastic products reports the following
Gower Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2012.
Gower Inc., produced 75,000 units of product in 2012. Gower’s management is estimating costs for 2013 based on 2012 numbers. The following additional information is available for 2013:
a. Direct materials prices in 2013 are expected to increase by 5% compared with 2012.
b. Under the terms of the labour contract, direct manufacturing labour wage rates are expected to increase by 10% in 2013 compared with 2012.
c. Power rates and wage rates for supervision, materials-handling, and maintenance are not expected to change from 2012 to 2013.
d. Amortization costs are expected to increase by 5%, and rent, property taxes, and administration costs are expected to increase by 7%.
e. Gower, Inc. expects to manufacture and sell 80,000 units in 2013.
1. Prepare a schedule of variable, fixed, and total manufacturing costs for each account category in 2013. Estimate total manufacturing costs for 2013.
2. Calculate Gower’s total manufacturing cost per unit in 2012 and estimated total manufacturing cost per unit in 2013.
3. How can you get better estimates of fixed and variable costs? Why would these better estimates be useful to Gower?
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