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SECTION 14-1 Manufacturing

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Section Objective Compute: prime cost of manufacturing an item

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**Key Words to Know manufacturer Makes, or produces, a product.**

direct material cost The cost of the goods or materials used to make a product.

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**Key Words to Know direct labor costs**

The cost of the labor used to make a product, such as wages paid to employees. prime cost The total of the direct material cost and the direct labor cost used to make a product, often expressed on a per-unit basis.

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**Formula Prime Cost = Direct Material + Direct Labor**

per Item Cost per Item Cost per Item

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Do Now Electric 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?

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Answer: Step 1 Find the direct material cost per item. $1.80 ÷ 20 = $0.09

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Answer: Step 2 Find the direct labor cost per item. $19.50 ÷ 720 = $ or $0.027

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**Example 1 Answer: Step 3 Find the prime cost per item.**

Direct Material + Direct Labor Cost per Item Cost per Item $ $0.027 = $0.117

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Do Now 2 Jenna 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?

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Practice 1 Answer $0.62

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END OF SECTION 14-1 Manufacturing

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SECTION 14-2 Break-Even Analysis

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**Section Objective Calculate:**

break-even point in the number of manufactured units

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Key Words to Know break-even analysis- Determining how many units of a product must be made and sold to cover the cost of producing it.

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**Key Words to Know break-even point-**

The point where income from sales on a product equals what it cost to produce the product.

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**Key Words to Know fixed costs**

Production costs that remain the same no matter how much you produce, such as rent and salaries.

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**Key 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.

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**Break-Even Point in Units = Total Fixed Costs ____ ________ **

Formula Break-Even Point in Units = Total Fixed Costs ____ ________ Selling Price per Unit – Variable Costs per Unit

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Do Now Token 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?

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**Answer: 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

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Practice 1 Yell 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?

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Practice 1 Answer 43,029

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END OF SECTION 14-2 Break-Even Analysis

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