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

What incremental manufacturing cost will Martinez incur if it increases production from 10,000 to 10,001 units?

Answer 1

The incremental manufacturing cost for Martinez Company to produce one additional unit, increasing production from 10,000 to 10,001 units, is $9.50, the sum of the variable costs.

Step-by-step explanation:

The question is asking about the incremental manufacturing cost that will be incurred by Martinez Company if it increases production from 10,000 to 10,001 units within its relevant range of production. To calculate this, we focus on the variable costs since the fixed costs will not change with the production of one additional unit. The variable costs per unit at 10,000 units are direct materials of $5.30, direct labor of $2.80, and variable manufacturing overhead of $1.40. The incremental manufacturing cost for producing one more unit (from 10,000 to 10,001) would be the sum of these variable costs.

Incremental manufacturing cost = Direct materials + Direct labor + Variable manufacturing overhead
Incremental manufacturing cost = $5.30 + $2.80 + $1.40
Incremental manufacturing cost = $9.50.

Therefore, the incremental manufacturing cost for one more unit is $9.50, which is the added cost of the variable components for one unit.