Reference no: EM132548685

Dunder Mifflin, a retailer of office paper, sells 4 products produced at its Scranton, PA paper mill:

• 38 pound bond
• 40 pound Letter Stock
• 65 pound cover stock (which is the heaviest paper that will still feed smoothly through your desktop printer)
• Airstream Deluxe A4 ("The Cadillac of Paper")

Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2009 are $290 million ($55 million of which are fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line.

Question a.) Calculate the total manufacturing cost per unit for each product produced in July 2009 (including fixed and variable costs)

Question b.) Regional Manager, Michael Scott has prepared projected August 2009 manufacturing costs using the cost per unit rates calculated in question 1 (June 2009) and expected sales volumes for August 2009. The CEO, David Wallace is questioning why the fixed overhead costs of $55M were included in the rates used to make the projection. Why would the CEO question the use of fixed overhead in the rates?