Question :

Interpreting and computing manufacturing unit costs. Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Regular and Deluxe. Each product has its own dedicated production line at the plant. It presently uses the following three-part classification for its manufacturing costs: direct materials, manufacturing overhead costs and direct manufacturing labor. Total manufacturing overhead costs of the plant in July 2011 are $150 million ($15 million of which are fixed). This net 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 2011 are as follows:

1. If the cost objects were the "mixing department" rather than units of production of each kind of bread, which preceding costs could now be direct instead of indirect costs?

2. Classification of costs, service sector. Consumer Focus is a marketing research firm that manages focus groups for consumer-product companies. Every focus group has eight individuals who are paid $50 per session to give comments on new products. These focus groups meet in hotels and are led by a trained, independent, marketing specialist hired by Consumer Focus. Each specialist is paid a fixed retainer to conduct a minimum number of sessions and a per session fee of $2,000. A Consumer Focus staff member attends each session to make sure that all the logistical aspects run smoothly.

                                                                     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

Required

1. Evaluate the manufacturing cost per unit for each product produced in July 2011.

2. Consider that in August 2011, production was 150 million units of Supreme, 190 million units of Deluxe, and 220 million units of Regular. Why might the July 2011 information on developed cost per unit be disingenuous when predicting total manufacturing costs in August 2011?