Question

Cruise Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this​ part, assuming a production level of 6 comma 300 ​units, are as​ follows: Direct materials $ 4.20 Direct labor $ 4.30 Variable manufacturing overhead $ 3.40 Fixed manufacturing overhead $ 1.30 Total cost $ 13.20 The fixed overhead costs are unavoidable. Assuming no other use for its​ facilities, what is the highest price per unit that Cruise Company should pay for the​ part?

Answer 1

Answer: $11.90

Step-by-step explanation:

GIVEN THE FOLLOWING ;

Direct material = $4.20

Direct labor = $4.30

Variable manufacturing overhead = $3.40

Fixed manufacturing overhead = $1.30

Total cost = $13.20

However, in calculating the manufacturing cost of an item or part as in the question above, Fixed manufacturing overhead cost is excluded as this expenses are not directly related to the cost of

manufacturing the item or part in question. Fixed manufacturing cost are unavoidable and doest not change with productivity level.

Therefore, highest price per unit for the part is given by;

Direct material Cost + Direct labor cost + variable manufacturing overhead

$4.20 + $4.30 + $3.40 = $11.90 ( highest price per unit).

Answer 2

Maximum price= $11.9

Step-by-step explanation:

Giving the following information:

Assuming a production level of 6,300 ​units:

Direct materials $ 4.20

Direct labor $ 4.30

Variable manufacturing overhead $ 3.40

The fixed overhead costs are unavoidable

Because the fixed overhead costs are unavoidable, we will concentrate on the variable costs.

The maximum price would be the total variable cost:

Total variable cost= 4.2 + 4.3 + 3.4= $11.9

Maximum price= $11.9