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 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Answer 1

The total amount of fixed manufacturing cost incurred to support the production of 12,500 units is $228,125.

Step-by-step explanation:

To find the total amount of fixed manufacturing cost incurred to support the production of 12,500 units, we need to calculate the fixed manufacturing cost per unit.

First, we calculate the total average cost per unit for the production of 10,000 units:

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

Total average cost per unit = $5.30 + $2.80 + $1.40 + $4.00 + $2.30 + $2.20 + $1.20 + $0.45 = $19.65

Next, we calculate the fixed manufacturing cost per unit:

Fixed manufacturing cost per unit = Total average cost per unit - Variable manufacturing overhead per unit = $19.65 - $1.40 = $18.25

Finally, we calculate the total amount of fixed manufacturing cost incurred for 12,500 units:

Total fixed manufacturing cost = Fixed manufacturing cost per unit * Number of units produced = $18.25 * 12,500 = $228,125