Question

Caraco Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. Production volume 12,400 units 13,400 units Direct materials $ 76.90 per unit $ 76.90 per unit Direct labor $ 52.20 per unit $ 52.20 per unit Manufacturing overhead $ 75.60 per unit $ 71.60 per unit The best estimate of the total cost to manufacture 13,200 units is closest to:

Answer 1

Answer:

Total cost= $2,659,160

Explanation:

First, we need to calculate the fixed manufacturing overhead and the variable overhead:

Total overhead costs= 75.6*12,400= $937,440

Total overhead costs= 71.6*13,400= $959,440

Variable cost per unit= (Highest activity cost - Lowest activity cost)/ (Highest activity units - Lowest activity units)

Variable cost per unit= (959,440 - 937,440) / (13,400 - 12,400)

Variable cost per unit= $22

Fixed costs= Highest activity cost - (Variable cost per unit * HAU)

Fixed costs= 959,440 - (22*13,400)

Fixed costs= $664,640

Fixed costs= LAC - (Variable cost per unit* LAU)

Fixed costs= 937,440 - (22*12,400)

Fixed costs= $664,640

Now, we can calculate the total cost for 13,200 units:

Total cost= 76.9*13,200 + 52.2*13,200 + 22*13,200 + 664,640

Total cost= $2,659,160