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Minnesota Office Products (MOP) produces three different paper products at its Vaasa lumber plant: Supreme, Deluxe, and Regular. Each product has its own dedicated production line at the plant. It currently uses the following three-part classification for its manufacturing costs: direct materials, direct manufacturing labor, and manufacturing overhead costs. Total manufacturing overhead costs of the plant in July 2017are $150 million ($15 million of which are fixed). This total amount is allocated to each product line on the basis of the direct manufacturing labor costs of each line. Summary data (in millions) for July 2017 are as follows:

	Supreme	Deluxe	Regular
Direct material costs	$89	$57	$60
Direct manufacturing labor costs	$16	$26	$8
Manufacturing overhead costs	$48	$78	$24
Units produced	125	150	140

Requirement 2. Suppose that, in August 2017, production was 150 million units of Supreme, 190 million units of Deluxe, and 220 million units of Regular. Why might the July 2017 information on manufacturing cost per unit be misleading when predicting total manufacturing costs in August 2017?

During July 2017, the company incurred $150 million of manufacturing overhead costs, which includes a _________ cost component that ______ with changes in monthly production volume. This amount, which _____ been allocated to the total manufacturing costs of producing each product, ______ the total manufacturing cost per unit amounts as calculated in requirement 1.

Options to fill in the blank:

1. 15 million fixed

15 million variable

50 million variable

150 million fixed

2. will fluctuate

will not fluctuate

3. has

has not

4. affects

has no effect on

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