Question & Answer: 4.36 Cost estimation: Account classification Mega Manufacturing is considering whether to increase the production of one of its products, the Mega Rototiller……

4.36 Cost estimation: Account classification Mega Manufacturing is considering whether to increase the production of one of its products, the Mega Rototiller. The product has done better than expected, and management wishes to figure out the costs of increasing production (and sales) from 10,000 units to 12,500 units per month. The following data pertain to the current production o 10,000 units per month. umber of Units 10,000 $120,000 15,000 fraced traced etermined as10%of labor cost and 4,500 67,500 At $1.50 per machine hour At $22 50 per machine hour Based on area Based on is and lubricants nt heating and lighting 500 At 4% of sales revenue Allocated based on sans Allocatedbased onhead court office administration orporate office costs 400 - otal product cost Required Determine the expected increase in costs if Mega decides to produce 12,500 units per month. This increase would last for two months, and then Mega would revert to its production level of 10,000 units per month. Be sure to consider the nature of the cost and its controliability in your answer Expected Increase in Costs

4.36 Cost estimation: Account classification Mega Manufacturing is considering whether to increase the production of one of its products, the Mega Rototiller. The product has done better than expected, and management wishes to figure out the costs of increasing production (and sales) from 10,000 units to 12,500 units per month. The following data pertain to the current production o 10,000 units per month. umber of Units 10,000 $120,000 15,000 fraced traced etermined as10%of labor cost and 4,500 67,500 At $1.50 per machine hour At $22 50 per machine hour Based on area Based on is and lubricants nt heating and lighting 500 At 4% of sales revenue Allocated based on sans Allocatedbased onhead court office administration orporate office costs 400 – otal product cost Required Determine the expected increase in costs if Mega decides to produce 12,500 units per month. This increase would last for two months, and then Mega would revert to its production level of 10,000 units per month. Be sure to consider the nature of the cost and its controliability in your answer Expected Increase in Costs

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