Question

The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product: Production volume 1,000 units 3,000 units Direct materials $13.20 per unit $13.20 per unit Direct labor $14.50 per unit $14.50 per unit Manufacturing overhead $65.40 per unit $29.40 per unitThe best estimate of the total cost to manufacture 1,200 units is closest to: $100,920 $111,720 $90,120 $68,520

Answer 1

Answer: Option (a) is correct.

Explanation:

Total manufacturing overhead at 1000 units:

= Production volume × Manufacturing overhead per unit

= 1,000 × $65.40 per unit

= $65,400

Total manufacturing overhead at 3000 units:

= Production volume × Manufacturing overhead per unit

= 3,000 × $29.40 per unit

= $88,200

Therefore,

$Cost\ per\ unit=\frac{variable\ cost}{unit\ for\ manufacturing\ overhead}$

$=\frac{88,200-65,400}{3000-1000}$

      = $11.4/unit

Fixed costs for manufacturing overhead = Total manufacturing overhead at 3000 units - (Production volume × Cost per unit)

                                         = $88,200 - (3000 × 11.4)

                                         = $54000.

Total cost to manufacture 1200 units = Direct materials cost + Direct labor + manufacturing overheads

                                                              = (13.2+14.5+11.4) × 1,200 + 54,000

                                                              = $100,920