The HOW and WHY of Calculating Prime Cost, Conversion Cost, Variable Product Cost, and Total Product Cost 

Information:

Carreker Company manufactures cell phones. For next year, Carreker predicts that 30,000 units will be produced, with the following total costs:

Direct materials                                             $150,000

Direct labour                                                      90,000

Variable overhead                                             30,000

Fixed overhead                                                450,000

Why:
Product costs are basic to management control and decision making. Managers use these costs for budgeting to check the impact of an increase or a decrease in unit sales on operating income. Since fixed costs stay the same when units change, knowledge of prime cost, conversion cost, variable product cost, and overall product cost give important information, allowing analysis of costs at differing levels of production.

Required:
1. Calculate the prime cost per unit.

2. Calculate the conversion cost per unit.

3. Calculate the total variable product cost per unit.

4. Calculate the total product (manufacturing) cost per unit.

5. What if 32,000 cell phones could be manufactured next year? Explain in words how that would affect the unit prime cost, the unit conversion cost, the unit variable product cost, and the unit total product cost.