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 10,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production?

Answer 1

The total direct manufacturing costs for Martinez Company at 10,000 units produced are $95,000, and the fixed manufacturing overhead, which is an indirect cost, is $40,000. Thus, the total manufacturing costs equal $135,000.

Step-by-step explanation:

When analyzing the total manufacturing costs at the Martinez Company for a production of 10,000 units, we must consider both direct and indirect costs.

Direct costs include direct materials, direct labor, and variable manufacturing overhead. To calculate the total direct cost, we multiply each cost by the number of units produced:

• Direct materials: 10,000 units × $5.30/unit = $53,000
• Direct labor: 10,000 units × $2.80/unit = $28,000
• Variable manufacturing overhead: 10,000 units × $1.40/unit = $14,000

Summing these up, the total direct costs incurred equals $95,000.

Indirect costs, or fixed manufacturing overhead, do not vary with the number of units produced. For 10,000 units, the fixed manufacturing overhead remains at $40,000 (10,000 units × $4.00/unit).

Therefore, the total manufacturing costs are the sum of total direct costs and fixed manufacturing overhead, which equals $95,000 + $40,000 = $135,000.