Gower, Inc., a manufacturer of plastic products, reports the following - 74790

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Gower, Inc., a manufacturer of plastic products, reports the following
manufacturing costs and account analysis classification for the year ended December 31, 2012.
Account Classification Amount
Direct materials All variable $300,000
Direct manufacturing labor All variable 225,000
Power All variable 37,500
Supervision labor 20% variable 56,250
Materials-handling labor 50% variable 60,000
Maintenance labor 40% variable 75,000
Depreciation 0% variable 95,000
Rent, property taxes, and administration 0% variable 100,000

Gower, Inc., produced 75,000 units of product in 2012. Gower’s management is estimating costs for 2013 on
the basis of 2012 numbers. The following additional information is available for 2013.
a. Direct materials prices in 2013 are expected to increase by 5% compared with 2012.
b. Under the terms of the labor contract, direct manufacturing labor wage rates are expected to increase
by 10% in 2013 compared with 2012.
c. Power rates and wage rates for supervision, materials handling, and maintenance are not expected to
change from 2012 to 2013.
d. Depreciation costs are expected to increase by 5%, and rent, property taxes, and administration costs
are expected to increase by 7%.
e. Gower expects to manufacture and sell 80,000 units in 2013.

1. Prepare a schedule of variable, fixed, and total manufacturing costs for each account category in 2013.
Estimate total manufacturing costs for 2013.
2. Calculate Gower’s total manufacturing cost per unit in 2012, and estimate total manufacturing cost per
unit in 2013.
3. How can you obtain better estimates of fixed and variable costs? Why would these better estimates be
useful to Gower?

Solution Description

Gower, Inc.,

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