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How much is the variable manufacturing cost per unit

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Question - Cortez Company is planning to introduce a new product that will sell for $96 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year:

Direct materials - $800,000

Direct labor - 640,000 (= $16 per hour x 40,000 hours)

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product.

Simple Regression Analysis Results

Dependent variable - Factory overhead costs

Independent variable - Direct labor - hours

Computed values

Intercept

$120,000

Coefficient on independent variable

$5.00

Coefficient of correlation

0.921

R2

0.848

Required -

1. Based on the above information, how much is the variable overhead cost allocation to a unit of product?

2. Based on the above information, how much is the variable manufacturing cost per unit?

3. Based on your answer in question#1, how much the total variable overhead costs is allocated to products if the firm sells 18,000 units of the product?

Reference no: EM132248508

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