2Section ObjectiveCompute:prime cost of manufacturing an item
3Key Words to Know manufacturer Makes, or produces, a product. direct material costThe cost of the goods or materials used to make a product.
4Key Words to Know direct labor costs The cost of the labor used to make a product, such as wages paid to employees.prime costThe total of the direct material cost and the direct labor cost used to make a product, often expressed on a per-unit basis.
5Formula Prime Cost = Direct Material + Direct Labor per Item Cost per Item Cost per Item
6Do NowElectric Supply, Inc., produces aluminum circuit housings. The machine operator stamps 20 housings from each strip of aluminum. Each strip costs $1.80. The operator can stamp 720 housings per hour. The direct labor charge is $19.50 per hour.To the nearest tenth of a cent, what is the prime cost of manufacturing a circuit housing?
7Answer: Step 1Find the direct material cost per item.$1.80 ÷ 20 = $0.09
8Answer: Step 2Find the direct labor cost per item.$19.50 ÷ 720 = $ or $0.027
9Example 1 Answer: Step 3 Find the prime cost per item. Direct Material + Direct LaborCost per Item Cost per Item$ $0.027 = $0.117
10Do Now 2Jenna Fields is a die cut machine operator. She makes 105 shoe soles from one piece of rubber. Each sheet of rubber costs $3.95. Jenna is able to make one every 5 seconds. The direct labor cost is $17.50 per hour.What is the prime cost of manufacturing one shoe sole to the nearest cent?
14Section Objective Calculate: break-even point in the number of manufactured units
15Key Words to Knowbreak-even analysis-Determining how many units of a product must be made and sold to cover the cost of producing it.
16Key Words to Know break-even point- The point where income from sales on a product equals what it cost to produce the product.
17Key Words to Know fixed costs Production costs that remain the same no matter how much you produce, such as rent and salaries.
18Key Words to Know variable costs The costs of producing a product that vary directly with the number of units produced, such as raw materials and packaging.
19Break-Even Point in Units = Total Fixed Costs ____ ________ FormulaBreak-Even Point in Units =Total Fixed Costs ____ ________Selling Price per Unit – Variable Costs per Unit
20Do NowToken Metal Products manufactures can openers. They plan to manufacture 750,000 hand-held can openers to be sold at $0.44 each. The fixed costs are estimated to be $142,570. Variable costs are $0.19 per unit.How many can openers must be sold for Token Metal Products to break even?
21Answer: Step: Find the break-even point in units. Total Fixed ÷ (Selling Price – Variable Costs)Costs ( per Unit per Unit )$142, ÷ ($0.44 − $0.19) =$142, ÷ $0.25 = 570,280
22Practice 1Yell Textiles manufactures rugs. It plans to manufacture small rugs to be sold at $22.99 each. The fixed costs are estimated to be $265,490. Variable costs are $16.82 per unit.How many rugs must be sold for Yell Textiles to break even?