The following data apply to the provision of psychological testing services: Sales price per unit (1 unit = 1 test plus feedback to client) 900
Fixed costs (per month): Selling and administration 90,000
Production overhead (e.g., rent of testing facilities) 135,000
Variable costs (per test):
Labor for oversight and feedback 360
Outsourced test analysis 60
Materials used in testing 15
Production overhead 30
Selling and administration (e.g., scheduling and billing) 45
Number of tests per month 1,500 tests
Calculate the amount for each of the following (one unit = one test) if the number of tests is 1,500 per month.
Also calculate if the number of tests decreases to 1,250 per month.
1,500 Tests 1,250 Tests
a.Variable production cost per unit.
b.Variable cost per unit.
c.Full cost per unit.
d.Full absorption cost per unit.
e.Prime cost per unit.
f.Conversion cost per unit.
g.Contribution margin per unit.
h.Gross margin per unit.

                                                                  For 1,500 tests     For 1,250 tests

a. Variable production cost per unit                465                      465

b. Variable cost per unit                                    510                      510

c. Full cost per unit                                            660                     690

d. Full absorption cost per unit                        555                      573

e. Prime cost per unit                                        435                      435

f. Conversion cost per unit                               540                      558

g. Contribution margin per unit                        390                      390

h. Gross margin per unit                                    345                      327

Explanation:

To calculate these, the following formula will be used the calculations:

a. Variable production cost per unit = Labor + Outsourced test + Materials used + Production

b. Variable cost per unit = Variable production cost + Selling and administration

c. Full cost per unit = Variable cost per unit + (Total fixed costs / Number of tests)

d. Full absorption cost per unit = Variable production cost per unit + (Production overhead / Number of tests)

e. Prime cost per unit = Material + Labor + Outsource test analysis

f. Conversion cost per unit = Labor + Outsource test + Variable production overhead+ (Fixed production overhead / Number of tests)

g. Contribution margin per unit = Sale price - Variable cost per unit

h. Gross margin per unit = Sale price - Full absorption cost

Therefore, we can now proceed as follows:

1. Calculate the amount for each of the following (one unit = one test) if the number of tests is 1,500 per month.

a. Variable production cost per unit = Labor + Outsourced test + Materials used + Production = 360 + 60 + 15 + 30 = 465 per unit

b. Variable cost per unit = Variable production cost + Selling and administration per unit = 465 + 45 = 510 per unit

c. Full cost per unit = Variable cost per unit + (Total fixed costs / Number of tests) = 510 + ((90,000 + 135,000) / 1,500) = 510 + (225,000 / 1,500) = 510 + 150 = 660 per unit

d. Full absorption cost per unit = Variable production cost per unit + (Fixed production overhead / Number of tests) = 465 + (135,000 / 1,500) = 465 + 90 = 555 per unit

e. Prime cost per unit = Material + Labor + Outsource test analysis = 15 + 360 + 60 = 435 per unit

f. Conversion cost per unit = Labor + Outsource test + Variable production overhead + (Fixed production overhead / Number of tests) = 360 + 60 + 30 + (135,000 / 1,500) = 360 + 60 + 30 + 90 = 540 per unit

g. Contribution margin per unit = Sale price - Variable cost per unit = 900 – 510 = 390 per unit

h. Gross margin per unit = Sale price per unit - Full absorption cost per unit = 900 – 555 = 345

2. Also calculate if the number of tests decreases to 1,250 per month.

a. Variable production cost per unit = Labor + Outsourced test + Materials used + Production = 360 + 60 + 15 + 30 = 465 per unit

b. Variable cost per unit = Variable production cost + Selling and administration per unit = 465 + 45 = 510 per unit

c. Full cost per unit = Variable cost per unit + (Total fixed costs / Number of tests) = 510 + ((90,000 + 135,000) / 1,250) = 510 + (225,000 / 1,250) = 510 + 180 = 690 per unit

d. Full absorption cost per unit = Variable production cost per unit + (Fixed production overhead / Number of tests) = 465 + (135,000 / 1,250) = 465 + 108 = 573 per unit

e. Prime cost per unit = Material + Labor + Outsource test analysis = 15 + 360 + 60 = 435 per unit

f. Conversion cost per unit = Labor + Outsource test + Variable production overhead + (Fixed production overhead / Number of tests) = 360 + 60 + 30 + (135,000 / 1,250) = 360 + 60 + 30 + 108 = 558 per unit

g. Contribution margin per unit = Sale price - Variable cost per unit = 900 – 510 = 390 per unit

h. Gross margin per unit = Sale price per unit - Full absorption cost per unit = 900 – 573 = 327

why?

Explanation:

/(h)wī/

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adverb

for what reason or purpose.

"why did he do it?"

adverb

(with reference to a reason) on account of which; for which.

"the reason why flu shots need repeating every year is that the virus changes"

exclamation

1.

expressing surprise or indignation.

"why, that's absurd!"

2.

used to add emphasis to a response.

"“You think so?” “Why, yes.”"

noun

a reason or explanation.

"the whys and wherefores of these procedures need to be explained to students"