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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:
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1) If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced?
2) If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?
3) If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?
4) 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?
5) If 12,500 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?
6) If the selling price is $22 per unit, what is the contribution margin per unit?
7) If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production?
8) What incremental manufacturing cost will Martinez incur if it increases production from 10,000 to 10,001 units?
Manufacturing overhead costs are the majority of indirect expenses that are incurred while making or producing products. In the field of financial management the indirect costs, sometimes referred to by the names of production burden, or factory overhead, are added on top of direct labor costs and material costs to create the price of the final product.
1)
Fixed manufacturing cost per unit at 12,500 units = (Fixed manufacturing overhead per unit * 10,000) / 12,500
= ($4.00 * 10,000) / 12,500
= $40,000 / 12,500
= $3.20
2)
Total manufacturing cost = 10,000 x $4.00
= $40,000
Fixed manufacturing costs are fixed at every level of output.
3)
Total manufacturing cost for 12,500 units = Fixed manufacturing costs per unit for 12,500 units * Units
= $3.20 * 12,500
= $40,000
4)
Variable manufacturing overhead = 8,000 units = $1.50
= $12,000
Fixed manufacturing overhead = $40,000
Total manufacturing overhead = $12,000 + $40,000
= $52,000
Total manufacturing overhead per unit = $52,000 / 8,000
= $6.50
5)
Variable manufacturing overhead = 12,500 units * $1.50
= $18,750
Fixed manufacturing overhead = $40,000
Total manufacturing overhead = $18,750 + $40,000
= $58,750
Total manufacturing overhead per unit = $58,750 / 12,500
= $4.70
6)
Contribution margin per unit = Selling price – Variable cost per unit
Variable cost per unit = Direct material + Direct labor + Variable manufacturing overhead + Sales commission + Variable administrative expenses
= $6.00 + $3.50 + $1.50 + $1.00 + $0.50
= $12.50
Contribution margin per unit = $22 – $12.50
= $9.50
7)
Direct manufacturing costs = Direct materials + Direct labor * Units
= ($6.00 + $3.50) * 11,000
= $104,500
Indirect manufacturing costs = (Variable manufacturing overhaed * 11,000) + Fixed manufacturing overhead
= ($1.50 * 11,000) + ($4.00 * 10,000)
= $16,500 + $40,000
= $56,500
8)
Incremental manufacturing cost = (10,001-10,000) * (Direct materials + direct labor + variable manufacturing costs).
= 1 * ($6.00 + $3.50 + $1.50)
= $11