Question

The following data apply to the provision of psychological testing services:

Answer 1

Answer:

2, 000 units

a. $200

b. $214

c. $234.25

d. $383.25

e. $172

f. $176.25

g. $106

h. $85.75

1, 250 units

a. $200

b. $214

c. $246.40

d. $390

e. $172

f. $183

g. $106

h. $85.75

Explanation:

Psychological Testing Services:

a. Variable production costs: is an expense that changes in proportion to the number of units that are produced. These are all expenses incurred in the production process.

Variable production cost = the sum of all variable production costs

Labor for oversight and feedback = $165

Outsourced test analysis = $19

Materials used in testing = $7

Production overhead =$9

Variable production cost per unit =$165 + $19 + $7 + $9 + $14 = $200

b. Variable cost per unit: these are similar to variable production costs; however, these also include the variable costs that were not directly part of the production process, e.g. administrative expenses.

Variable cost per unit = $200 + $14 = $214

c. Full cost per unit: this is the sum of all costs that were incurred in the production of the goods. It includes both variable and fixed costs.

Full cost per unit = variable cost per unit + fixed cost per unit

(Fixed costs per unit = [$18, 000 + $22, 500]/2000 = $20.25)

= $214 + $20.25 = $234.25

d. Full absorption cost per unit: cost of the direct materials, direct labor, variable overhead, and fixed overhead.

$7 + $165 + $200 + [$22, 500 / 2, 000] = $383.25

e. Prime cost per unit: all costs that are directly attributable to the production of each product i.e. direct materials and direct labor

      = $7 + $165 = $172

f. Conversion costs per unit: costs of converting raw materials into finished goods. Includes direct labor and production overheads

= $165 + [$22, 500 / 2, 000] = $176.25

g. Contribution margin per unit: this is the selling price per unit minus variable costs per unit. It shows the portion of sales that is not consumed by variable costs

= $320 - $214 = $106

h. Gross margin per unit: this is the selling price minus cost of goods sold.  

= $320 - $234.25 = $85.75

For 1, 250 units

a. Variable production cost per unit =$165 + $19 + $7 + $9 + $14 = $200

b. Variable cost per unit = $200 + $14 = $214

c. Fixed costs per unit = [$18, 000 + $22, 500]/1, 250 = $32.40)

= $214 + $32.40 = $246.40

d. Full absorption cost per unit = $7 + $165 + $200 + [$22, 500 / 1, 250] = $390

e. Prime cost per unit = = $7 + $165 = $172

f. Conversion costs per unit = $165 + [$22, 500 / 1, 250] = $183

g. Contribution margin per unit = = $320 - $214 = $106

h. Gross margin per unit = = $320 - $234.25 = $85.75

Answer 2

Answer:

Explanation:

a) Variable production cost per unit:

Labor for oversight and feedback 165

Outsourced test analysis 19

Materials used in testing 7

Production overhead 9

Total $200

*The same amount will be for 1,250 tests, because per unit cost does not change.

b) Variable cost per unit

Variable production cost per unit 200

Selling and administration (e.g., scheduling and billing) 14

Total $214

*The same amount will be for 1,250 tests, because per unit cost does not change.

c) Full cost per unit for 2000 tests:

Variable cost per unit 214

Fixed cost per unit (18,000+22,500/2,000) 20.25

Total $234.25

Full cost per unit for 2000 tests:

Variable cost per unit 214

Fixed cost per unit (18,000+22,500/1,250) 32.40

Total $246.40

d) Full absorption cost per unit for 2000 tests:

Variable production cost per unit 200

Fixed cost per unit (22,500/2,000) 11.25

Total $211.25

Full absorption cost per unit for 1250 tests:

Variable production cost per unit 200

Fixed cost per unit (22,500/1,250) 18

Total $218

e) Prime cost per unit for 2000 tests:

Labor for oversight and feedback 165

Outsourced test analysis 19

Materials used in testing 7

Total $191

*prime cost - the direct cost of a commodity in terms of the materials and labor involved in its production, excluding fixed costs.  Hence it is direct variable costs and they stay the same for 1250 tests.

f) Conversion cost per unit for 2000 tests:

Labor for oversight and feedback 165

Outsourced test analysis 19

Variable Production overhead 9

Fixed Production overhead (22,500/2000) 11.25

Total $204.25

Conversion cost per unit for 1250 tests:

Labor for oversight and feedback 165

Outsourced test analysis 19

Variable Production overhead 9

Fixed Production overhead (22,500/1250) 18

Total $211

g) Contribution margin per unit for 2000 tests:

Sales price per unit 320

Less: Variable cost per unit 214

Contribution margin 106

Contribution margin per unit for 1250 tests:

Sales price per unit 320

Less: Variable cost per unit 214

Contribution margin 106

h) Gross margin per unit for 2000 tests:

Sales price per unit 320

Less: Full absorption cost 211.25

GM 108.75

Gross margin per unit for 2000 tests:

Sales price per unit 320

Less: Full absorption cost 218

GM 112

Hope this helps!