Question

Rush Industries, Inc. builds parts for large automated heavy equipment. The Vice President for Marketing has determined that sales are dwindling for the firm's products because of aggressive pricing by competitors. Rush Industries sells the product for $775 whereas the competition's comparable part is selling in the $650 range. The VP for Marketing has determined that a price drop to $625 is necessary to regain market share and annual sales of 1,200 units. Data based on sales of 1,200 units is as follows:
Budgeted Amount Actual Amount Cost
Direct materials (sheet metal) 8,000 sq.ft. 10,000 sq.ft. $9.66 per sq.ft.
Direct labor 4,800 hrs. 5,000 hrs. $33.60 per hour
Machine setups 2,600 hrs. 2,800 hrs. $42.00 per hour
Mechanical assembly 3,200 hrs. 3,600 hrs. $34.00 per hour
Required:
1. The current cost per unit is ___________.

Answer 1

Answer:

The current cost per unit is $ 420.50  

Explanation:

The current cost per unit is synonymous with the actual cost per unit which is determined by summing up all costs incurred in actual sense and dividing by the sales volume of 1,200 units

direct materials =10,000*$9.66=$ 96,600

direct labor=5,000*$33.60        =$ 168,000

machine set-ups=2,800*$42     =$ 117,600

mechanical assembly=3,600*$34=$122,400

total actual costs                            =$ 504,600

cost per unit=total costs/sales volume=$ 504,600/1200=$ 420.50  

Using budgeted figures would only give us budgeted cost per unit