Question

Schonhardt Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows:

Average Cost per Unit
Direct materials $7.75
Direct labor $3.20
Variable manufacturing overhead $1.80
Fixed manufacturing overhead $3.30
Fixed selling expense $1.10
Fixed administrative expense $0.80
Sales commissions $0.90
Variable administrative expense $0.80
If 6,000 units are produced, the total amount of fixed manufacturing cost incurred is?

Answer 1

Total fixed cost manufacturing =$16,500

Step-by-step explanation:

Not that fixed costs are those which do not vary within a relevant range of activities. The average fixed cost given must have been determined by dividing the total fixed cost by the number of units produced .

Hence to work back the total fixed cost we would multiply the average cost by 5,000 units.

Total fixed cost manufacturing = $3.30 ×5,000= $16,500

Note that we multiplied the average cost per unit by 5,000 units and not 6,000 units simply because fixed cost by their nature of behavior do not vary with activity level within a range

Total fixed cost manufacturing =$16,500