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Posting

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Submitted By Woodzie
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Posting

Remember that to determine the fixed factory produict cost per unit we estimated the total factory fixed costs divided by the total units produced..

1) In estimating the fixed factory cost per unit we must estimate total factory fixed costs on an annual basis. What type of fixed factory costs might be difficult to estimate on an annual basis? Make sure you tell the class what industry you are using as an example.

2) What is easier to forecast-a) the estomated factory fixed overhead costs-numerator or b) the total estimated units prodiced? Explain breifly why.

1) For my brief dealings with the Air Conditioning industry, and their manufacturing practices, I would say that the most difficult fixed factory costs to estimate on an annual basis would be the copper tubing. Depending on the size of the unit, you can have multiple yards of copper tubing inside. What makes the copper difficult to estimate is the fluctuation in costs over the year. The cost of copper (based on the last 12 months) has went from $3.40/lb to $4.40/lb. There was a point in January where it went over $4.50/lb. That makes it very difficult to estimate.

2) Once again, in my brief dealings with the Air Conditioning industry, by far, the total estimated units produced were the easiest to estimate. We had a monthly backlog of about 200 units, and we were basically limited by our production equipment. We produced " X" amount of units per week, so we knew exactly how many units were going to be produced month to month. The main thing that slowed us down was if the production equipment would go down, or a supplier didn’t deliver on time.

There was a time when we tried to do a trend analysis on the fixed overhead costs, and it didn’t work out from year to year or month to month. First of all we had the cost of the copper that varied, then we had the overtime which added

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