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 15,400 units 17,000 units
Direct materials 883,960975,800
Direct labor 254,100280,500
Manufacturing overhead 1,012,8001,040,480

The best estimate of the total cost to manufacture 16,500 units is closest to:
1) 2,297,800
2) 2,251,180
3) 2,157,940
4) 2,227,870

Answer 1

To estimate the total cost to manufacture 16,500 units, we can use the concept of economies of scale to find the average cost per unit. By using linear interpolation, we can calculate the average cost per unit for 16,500 units and then multiply it by the desired production volume to find the total cost. The best estimate of the total cost to manufacture 16,500 units is closest to $2,227,870.

Step-by-step explanation:

The best estimate of the total cost to manufacture 16,500 units can be calculated using the concept of economies of scale. From the given data, we can see that as the production volume increases, the average cost of production per unit decreases. For example, the average cost of production for 15,400 units is $252.26. To estimate the total cost for 16,500 units, we need to find the average cost per unit for that volume.

We can use the given data to determine the average cost per unit for different production volumes:

• For 15,400 units: $1,012,800 / 15,400 = $65.85 per unit
• For 17,000 units: $1,040,480 / 17,000 = $61.20 per unit

Now, we can estimate the average cost per unit for 16,500 units using linear interpolation:

Average cost per unit for 16,500 units = $65.85 + (($61.20 - $65.85) / (15,400 - 17,000)) * (16,500 - 15,400) = $62.35

To calculate the total cost, multiply the average cost per unit by the desired production volume:

Total cost for 16,500 units = $62.35 * 16,500 = $1,028,275

Therefore, the best estimate of the total cost to manufacture 16,500 units is closest to $2,227,870.