Question

Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 6.10 Direct labor $ 3.60 Variable manufacturing overhead $ 1.40 Fixed manufacturing overhead $ 4.00 Fixed selling expense $ 3.10 Fixed administrative expense $ 2.10 Sales commissions $ 1.10 Variable administrative expense $ 0.55 5. If 8,000 units are produced and sold, what is the total amount of variable costs related to the units produced and sold? (Do not round intermediate calculations.)

Answer 1

$102,000

Explanation:

As provided we have,

Variable cost components

Direct material = $6.10

Direct labor = $3.60

Variable manufacturing overhead = $1.40

Sales Commission = $1.10

It is assumed that sales commission is based on number of units and therefore, will be charged as variable cost and not the fixed cost.

Variable administrative expense = $0.55

As for 8,000 units this entire variable cost components will have same cost.

As the fixed cost is based on 10,000 units it will differ per unit on 8,000 units but the variable cost component will not change per unit.

Thus, total variable cost for 8,000 units = ($6.10 + $3.60 + $1.40 + $1.10 + $0.55)
`*` 8,000 = $102,000