Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2007 are $150 million ($20 million of which are fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data (in millions) for July 2007 are as follows:
1. Compute the manufacturing cost per unit for each product produced in July 2007.
2. Suppose that in August 2007, production was 120 million units of Supreme, 160 million units of Deluxe, and 180 million units of Regular. Why might the July 2007 information on manufacturing cost per unit be misleading when predicting total manufacturing costs in August 2007?