Question: Account analysis method. Gower, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2017.
Gower, Inc., produced 75,000 units of product in 2017. Gower's management is estimating costs for 2018 on the basis of 2017 numbers. The following additional information is available for 2018.
a. Direct materials prices in 2018 are expected to increase by 5% compared with 2017.
b. Under the terms of the labor contract, direct manufacturing labor wage rates are expected to increase by 10% in 2018 compared with 2017.
c. Power rates and wage rates for supervision, materials handling, and maintenance are not expected to change from 2017 to 2018.
d. Depreciation costs are expected to increase by 5%, and rent, property taxes, and administration costs are expected to increase by 7%.
e. Gower expects to manufacture and sell 80,000 units in 2018.
1. Prepare a schedule of variable, fixed, and total manufacturing costs for each account category in 2018. Estimate total manufacturing costs for 2018.
2. Calculate Gower's total manufacturing cost per unit in 2017, and estimate total manufacturing cost per unit in 2018.
3. How can you obtain better estimates of fixed and variable costs? Why would these better estimates be useful to Gower?