Question

Crane Company sells its product for $30 per unit. During 2022, it produced 27500 units and sold 15000 units (there was no beginning inventory). Costs per unit are: direct materials $8, direct labour $7, and variable overhead $6. Fixed costs are: $330000 manufacturing overhead, and $110000 selling and administrative expenses. The per-unit manufacturing cost under absorption costing is

a.$21.00.
b.$33.00.
c.$43.00.
d.$37.00.

Answer 1

To calculate total revenue, multiply the price per unit by the number sold. To calculate total cost, add fixed cost to the variable cost at each output level. The profit-maximizing quantity of output is four units.

Step-by-step explanation:

To calculate total revenue, multiply the price per unit by the number of units sold. For example, for one unit, the total revenue is $20. For two units, the total revenue is $40, and so on. To calculate marginal revenue, subtract the total revenue of the previous level from the total revenue of the current level.

To calculate total cost, add the fixed cost to the variable cost for each level of output. For example, for one unit, the total cost is $40. For two units, the total cost is $45, and so on. To calculate marginal cost, subtract the total cost of the previous level from the total cost of the current level.

The profit-maximizing quantity of output is the quantity at which marginal revenue equals marginal cost. From the given marginal cost values, it can be observed that the marginal cost decreases until the fourth unit and then increases. The profit-maximizing quantity of output is thus four units.