8/22/2014 PracCh2

Accounting 711 Managerial Accounting Anand Rangarej

MBA: ACC 711-899 F14 Online
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The following data apply to the provision of psychological testing services.

Sales price per unit (1 unit = 1 test plus feedback to client) $ 310
Fixed costs (per month):
Selling and administration 20,000
Production overhead (e.g., rent of testing facilities) 20,000
Variable costs (per test):
Labor for oversight and feedback 125
Outsourced test analysis 17
Materials used in testing 6
Production overhead 8
Selling and administration (e.g., scheduling and billing) 18
Number of tests per month 500 tests

Required:
Calculate the amount for each of the following (one unit = one test) if the number of tests is 500 per month.
Also calculate if the number of tests decreases to 400 per month.

500 Tests 400 Tests

a. Variable production cost per unit. $ 156

b. Variable cost per unit. $ 174

c. Full cost per unit. $ 254
d. Full absorption cost per unit. $ 236
e. Prime cost per unit.
f. Conversion cost per unit.
g. Contribution margin per unit.
h. Gross margin per unit.

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

Sales price per unit (1 unit = 1 test plus feedback to client) $ 310
Fixed costs (per month):
Selling and administration 20,000
Production overhead (e.g., rent of testing facilities) 20,000
Variable costs (per test):
Labor for oversight and feedback 125
Outsourced test analysis 17
Materials used in testing 6
Production overhead 8
Selling and administration (e.g., scheduling and billing) 18
Number of tests per month 500 tests

Required:
Calculate the amount for each of the following (one unit = one test) if the number of tests is 500 per month.
Also calculate if the number of tests decreases to 400 per month.

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8/22/2014 PracCh2

500 Tests 400 Tests

a. Variable production cost per unit. $ 156 $ 156
b. Variable cost per unit. $ 174 $ 174
c. Full cost per unit. $ 254 $ 274
d. Full absorption cost per unit. $ 196 $ 206
e. Prime cost per unit. $ 148 $ 148
f. Conversion cost per unit. $ 190 $ 200
g. Contribution margin per unit. $ 136 $ 136
h. Gross margin per unit. $ 114 $ 104

Explanation:

500 Tests
a. Variable production cost per unit. ($125 + $17 + $6 + $8) $ 156
b. Variable cost per unit. ($156 + $18) $ 174
c. Full cost per unit. [$174 + ($40,000 500 units)] $ 254
d. Full absorption cost per unit. [$156 + ($20,000 500)] $ 196
e. Prime cost per unit. (materials + labor + outsource) $ 148
f. Conversion cost per unit. (labor + overhead + outsource) $ 190
g. Contribution margin per unit. ($310 $174) $ 136
h. Gross margin per unit. ($310 full absorption cost of $196) $ 114

400 Tests
a. Variable production cost per unit. ($125 + $17 + $6 + $8) $ 156
b. Variable cost per unit. ($156 + $18) $ 174
c. Full cost per unit. [$174 + ($40,000 400 units)] $ 274
d. Full absorption cost per unit. [$156 + ($20,000 400)] $ 206
e. Prime cost per unit. (materials + labor + outsource) $ 148
f. Conversion cost per unit. ($125 + $8 + ($20,000 400) + $17) $ 200
g. Contribution margin per unit. ($310 $174) $ 136
h. Gross margin per unit. ($310 $206) $ 104

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