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:

Direct materials$5.30
Direct labor$2.80
Variable manufacturing overhead$1.40
Fixed manufacturing overhead$4.00
Fixed selling expense$2.30
Fixed administrative expense$2.20
Sales commissions$1.20
Variable administrative expense$0.45

If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Answer 1

The total fixed manufacturing cost for Martinez Company remains constant within the relevant range of production, so regardless of producing 8,000 units or any other amount within the range, the total fixed cost does not change.

Step-by-step explanation:

The question provided pertains to the calculation of fixed manufacturing costs in a specific relevant range of production for the Martinez Company. When dealing with fixed costs, it is important to remember that these costs do not vary with the level of production within the relevant range. That is to say, whether the company produces 1 unit or 12,500 units, the fixed costs remain the same because they are not dependent on the quantity of output produced. Therefore, if the fixed manufacturing overhead cost per unit is $4.00 when 10,000 units are produced, the total fixed manufacturing cost for producing 8,000 units would remain unchanged.