horewood Manufacturing produces a single product requiring the following direct material and direct labor:

Manufacturing overhead consists of indirect material, \($0.60\) per unit of product, indirect labor, \($1,000\) per month plus \($0.70\) per unit of product; factory maintenance, \($14,000\) per year plus \($0.55\) per unit of product; factory depreciation, \($15,000\) per year; and annual factory property taxes, \($8,000.\) Selling and administrative expenses include the salaries of a sales manager, \($30,000\) per year; an office manager, \($18,000\) per year; and two salespersons, each of whom is paid a base salary of \($11,000\) per year and a commission of \($3\) per unit sold. Advertising and promotion of the product are done through a year-round media package program costing \($1,000\) per week.
Required

a. Analyze all cost and expense factors to determine a general formula (based on units of production) for total cost.

b. Assuming a relevant range of 10,000 to 20,000 units, what is the estimated unit cost for producing and selling 10,000 units? 20,000 units? Explain the variation in unit cost at the two levels of production.

c. If 15,000 units are produced and sold in a year, what selling price results in a net income before income tax of \($60,000\)?

Transcribed Image Text:

Description Material A. Material B. Material C. Cutting labor. Shaping labor. Finishing labor Cost per Unit of Input $ 8/pound 5/pound Required Amount per Unit of Product 10 ounces 8 ounces 20/gallon 0.3 gallon 9/hour 30 minutes 11/hour 15 minutes 12/hour 45 minutes