Problem 1. The following information is for a product manufactured and
sold by Rivera Corporation:
- Sales price per unit, $30
- Variable cost per unit, $20
- Total fixed costs, $200,000
- Last year, Rivera earned a profit of $60,000
1) How many units did Rivera sell last year?
2) Rivera’s managers are considering decreasing the sales price to $28 in an
effort to increase market share. Also, the company wants a profit of $80,000.
How many units would it have to sell at the lower selling price to achieve this
Problem 2. The management accountant at Melrose, Inc. provided the
following estimated costs for producing 5,000 units of a specialty product
manufactured by the firm:
The company believes that direct labor hours are the most appropriate cost
driver for assigning overhead costs to its product.
1) Compute the predetermined overhead rate for this company.
2) Compute the specialty product’s total estimated cost per unit.
3) Why do firms assign overhead costs using a predetermined overhead rate
instead of assigning actual costs?