# Cost Analysis for Canister Production

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Solution:(a)Calculation of the cost per unit of producing the canisters under the traditional approachThe cost per unit of producing the canisters under the traditional approach is \$ 1.50, calculated as below:ParticularsReference CalculationAmount (\$)Direct material 300,000.00 Direct labour (12,000*15) 180,000.00 Variable overhead (12,000*10) 120,000.00 Fixed overhead (12,000*45) 540,000.00 Total Cost 1,140,000.00 No. of Units 760,000.00 Cost per unit 1.50 (b)Calculation of the cost of purchasing the canistersThe company should go for manufacturing the canistersas the cost of manufacturing is \$0.07 lower than cost ofpurchase (cost of purchase is \$1.57 whereas the cost to manufacture is \$1.50).ParticularsAmount (\$)Cost of purchase\$1 No. of units760,000Total purchase cost\$760,000 Add: Unavoidable fixed costs (540,000-80,000-28,000)\$432,000 Total costs\$1,192,000 Cost per unit\$1.57 (c)Analysis of special offerThe offer should be accepted as the offered price for special offer is \$1.40 and cost per unit of manufacturing thisspecial offer is \$0.79.ParticularsReference calculation Amount (\$) Direct material (20,000*300,000/760,000) 7,895 Direct labour (20,000*180,000/760,000) 4,737 Variable overhead (20,000*120,000/760,000) 3,158 Total Cost 15,789

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