Question

Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume 5,000 units 6,000 units
Direct materials $ 103,500 $ 124,200
Direct labor $ 282,500 $ 339,000
Manufacturing overhead $ 667,000 $ 679,800
The best estimate of the total variable manufacturing cost per unit is: (Round your intermediate calculations to 2 decimal places.)

a. $90.00
b. $77.20
c. $12.80
d. $20.70

Answer 1

Option (a) is correct.

Step-by-step explanation:

Direct materials cost per unit:

= Change in cost ÷ Change in activity

= ($ 124,200 - $ 103,500) ÷ (6,000 units - 5,000 units)

= $20,700 ÷ 1,000 units

= $20.7

Direct labor cost per unit:

= Change in cost ÷ Change in activity

= ($339,000 - $282,500) ÷ (6,000 units - 5,000 units)

= $56,500 ÷ 1,000 units

= $56.5

Variable manufacturing overhead per unit:

= Change in cost ÷ Change in activity

= ($679,800 - $667,000) ÷ (6,000 units - 5,000 units)

= $12,800 ÷ 1,000 units

= $12.8

Therefore,

Total variable manufacturing cost per unit:

= Direct materials cost per unit + Direct labor cost per unit + Variable manufacturing overhead per unit

= $20.7 + $56.5 + $12.8

= $90