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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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Objectives 1. Classify costs by their behavior as variable costs, fixed costs, or mixed costs. 2. Compute the contribution margin, the contribution margin.

Objectives 1. Classify costs by their behavior as variable costs, fixed costs, or mixed costs. 2. Compute the contribution margin, the contribution margin.

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