Question

Grip Manufacturing currently produces 2,000 tires per month. The following per unit data for 2,000 tires apply for sales to regular​ customers:

Direct materials $ 32
Direct manufacturing labor 5
Variable manufacturing overhead 7
Fixed manufacturing overhead 10
Total manufacturing costs $ 54

The plant has capacity for 4,000 tires and is considering expanding production to 3,000 tires. What is the total cost of producing 3,000 ​tires?

A. $ 152,000
B. $ 162,000
C. $ 137,000
D. $ 110,000

Answer 1

The total cost of producing 3,000 tires at Grip Manufacturing, including both variable and fixed costs, is $152,000. This is option A.

Step-by-step explanation:

The student is asking for the total cost of producing 3,000 tires at Grip Manufacturing. Based on the given data, the variable costs for direct materials, direct manufacturing labor, and variable manufacturing overhead are $32, $5, and $7 per tire, respectively.

To determine the total variable cost for 3,000 tires, we simply multiply each variable cost by 3,000. Fixed manufacturing overhead remains constant regardless of the number of tires produced, so it would be $10 per tire for 2,000 tires or $20,000 in total (since $10 x 2,000 tires = $20,000).

When calculating the total cost for 3,000 tires, we must add the total fixed manufacturing overhead to the total variable costs. Therefore, the total variable cost is ($32 + $5 + $7) x 3,000 tires = $44 x 3,000 tires = $132,000.

The fixed manufacturing overhead is $20,000. Adding these together, the total cost of producing 3,000 tires would be $132,000 + $20,000 = $152,000. Therefore, the correct option is A. $152,000.