Gower Ltd., a manufacturer of plastic products, reports thefollowing manufacturing costs and account analysis classificationfor the year ended December 31, 2014.
Account Classification Amount
Direct materials
All variable
300,000
Direct manufacturing labour
All variable
225,000
Power
All variable
37,500
Supervision labour
20%
variable
56,250
Materials-handling labour
50%
variable
60,000
Maintenance labour
40%
variable
75,000
Depreciation
0%
variable
95,000
Rent, property taxes, and administration
0%
variable
100,000
Gower Ltd, produced 75,000 units of product in 2014. Gowerâsmanagement is estimating costs for 2015 on the basis of 2014numbers. The following additional information is available for2015:
a. Direct materials prices in 2015 are expected to increase by5% compared with 2014.
b. Under the terms of the contract, direct manufacturing labourwage rates are expected to increase by 10% in 2015 compared with2014.
c. Power rates and wage rates for supervision, materialshandling, and maintenance are not expected to change from 2014 to2015.
d. Depreciation costs are expected to increase by 5%, and rent,property taxes, and administration costs are expected to increaseby 7%.
e. Gower, Inc., expects to manufacture and sell 80,000 units in2015. Required:
1. Prepare a schedule of variable, fixed, and totalmanufacturing costs for each account category in 2015. Estimatetotal manufacturing costs for 2015.
2. Calculate Gowerâs total manufacturing cost per unit in 2014,and estimate total manufacturing cost per unit in 2015.
3. How can you get better estimates of fixed and variable costs?Why would these better estimates be useful to Gower?
Gower Ltd., a manufacturer of plastic products, reports thefollowing manufacturing costs and account analysis classificationfor the year ended December 31, 2014.
Account Classification Amount
Direct materials | All variable | 300,000 | |
Direct manufacturing labour | All variable | 225,000 | |
Power | All variable | 37,500 | |
Supervision labour | 20% | variable | 56,250 |
Materials-handling labour | 50% | variable | 60,000 |
Maintenance labour | 40% | variable | 75,000 |
Depreciation | 0% | variable | 95,000 |
Rent, property taxes, and administration | 0% | variable | 100,000 |
Gower Ltd, produced 75,000 units of product in 2014. Gowerâsmanagement is estimating costs for 2015 on the basis of 2014numbers. The following additional information is available for2015:
a. Direct materials prices in 2015 are expected to increase by5% compared with 2014.
b. Under the terms of the contract, direct manufacturing labourwage rates are expected to increase by 10% in 2015 compared with2014.
c. Power rates and wage rates for supervision, materialshandling, and maintenance are not expected to change from 2014 to2015.
d. Depreciation costs are expected to increase by 5%, and rent,property taxes, and administration costs are expected to increaseby 7%.
e. Gower, Inc., expects to manufacture and sell 80,000 units in2015. Required:
1. Prepare a schedule of variable, fixed, and totalmanufacturing costs for each account category in 2015. Estimatetotal manufacturing costs for 2015.
2. Calculate Gowerâs total manufacturing cost per unit in 2014,and estimate total manufacturing cost per unit in 2015.
3. How can you get better estimates of fixed and variable costs?Why would these better estimates be useful to Gower?
