Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2014 are $150 million ($15 million of which are fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data (in millions) for July 2014 are as follows: Supreme Deluxe Regular
Direct material costs $89 $57 $60
Direct manufacturing labor costs $16 $26 $8
Manufacturing overhead costs $48 $78 $24
Units produced 125 150 140
(1) Compute the manufacturing cost per unit for each product produced in July 2014.

(2) Suppose that, in August 2014, production was 150 million units of Supreme, 190 million units of Deluxe, and 220 million units of Regular. Why might the July 2014 information on manufacturing costs per unit be misleading when predicting total manufacturing costs in August 2014?

1)

                                                            Supreme   Deluxe   Regular

Direct material costs                               $89          $57       $60

Direct manufacturing labor costs           $16          $26         $8

Manufacturing overhead costs:            

Fixed overhead                                      $4.8         $7.8      $2.4

Variable overhead                                 $43.2      $70.2    $21.6

total costs                                               $153         $161       $92

Units produced                                        125          150        140

cost per unit                                          $1.224     $1.073    $0.657

2) Some product costs are variable, direct materials and direct labor, while other costs are mixed, manufacturing overhead. $15 million of overhead costs are fixed and they are allocated based on direct labor, while the rest is variable and depends on the production output. Since output production was higher during August, the cost per unit should be lower even if all the variable costs remain the same. As the number of total units produced increases, the fixed overhead cost per unit decreases.

answer; interviews;

answervulnerability assessment;