Question

Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. Production volume 10,000 units 12,000 units Direct materials $614,000 $736,800 Direct labor $185,000 $222,000 Manufacturing overhead $1,008,300 $1,042,500 The best estimate of the total cost to manufacture 10,800 units is closest to: (Do not round intermediate calculations.)

Answer 1

Answer:

$1,288,092

Explanation:

Take any sing level and calculate the following

Direct material cost per unit = $614,000 / 10,000 = $6.14 per unit

Direct Labor cost per unit = $185,000 / 10,000 = $18.5 per unit

We will use high low method to separate the variable and fixed component of Manufacturing overheads.

Variable Manufacturing overhead cost = ($1,042,500 - $1,008,300) / (12,000 - 10,000 ) = $17.1 per unit

Fixed Manufacturing overhead cost = $1,008,300 - ( $17.1 x 10,000 ) = $837,300

Now calculate the Manufacturing cost of 10,800 unit

Direct Material cost = $6.14 x 10,800 = $66,312

Direct Labor cost = $18.5 x 10,800 = $199,800

Manufacturing overhead cost

Variable = $17.1 x 10,800 = $184,680

Fixed = $837,300

Total cost = $66,312 + $199,800 + $184,680 + $837,300 = $1,288,092