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 manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis?

Answer 1

The total manufacturing overhead cost at the production level of 8,000 units is $51,200, calculated as the sum of the variable overhead for 8,000 units and the fixed overhead for 10,000 units. On a per-unit basis, this overhead cost is $6.40.

Step-by-step explanation:

The student has asked about the total manufacturing overhead cost at a production level of 8,000 units and how to calculate it on a per-unit basis. The relevant costs provided for 10,000 units of production include both variable and fixed costs. The variable manufacturing overhead is given as $1.40 per unit, and the fixed manufacturing overhead is $4.00 per unit. To calculate the total for 8,000 units, we multiply the variable overhead by the number of units and add the total fixed overhead, which does not change with the production level within the relevant range.

The calculation is as follows: (Variable Overhead per unit × Quantity) + Fixed Overhead = ($1.40 × 8,000) + ($4.00 × 10,000) = $11,200 + $40,000 = $51,200. To find the overhead cost per unit at this production level, divide the total overhead cost by the number of units produced: $51,200 ÷ 8,000 units = $6.40 per unit.