Question

Martinez Company’s relevant range of production is 8,700 units to 13,700 units. When it produces and sells 11,200 units, its unit costs are as follows: Amount Per Unit Direct materials $ 7.00 Direct labour $ 2.70 Variable manufacturing overhead $ 1.20 Fixed manufacturing overhead $ 5.00 Fixed selling expense $ 4.00 Fixed administrative expense $ 3.00 Sales commissions $ 2.00 Variable administrative expense $ 0.50

Required: For financial accounting purposes, what is the total amount of product costs incurred to make 11,200 units?

Answer 1

The total product costs incurred by Martinez Company to produce 11,200 units sum up to $178,080, including direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.

Step-by-step explanation:

To calculate the total product costs incurred by Martinez Company to make 11,200 units, we sum up the costs related to direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Martinez Company does not include selling and administrative expenses when calculating product costs for financial accounting purposes, as these are period costs and not product costs.

The costs are calculated as follows:
(11,200 units × $7.00 per unit) for direct materials +
(11,200 units × $2.70 per unit) for direct labor +
(11,200 units × $1.20 per unit) for variable manufacturing overhead +
(11,200 units × $5.00 per unit) for fixed manufacturing overhead
= $78,400 for direct materials +
$30,240 for direct labor +
$13,440 for variable manufacturing overhead +
$56,000 for fixed manufacturing overhead

Thus, the total product costs incurred to produce 11,200 units would be $178,080.