Question

EXERCISE 1-7 Direct and Indirect Costs LO1-1 Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows: Average Cost per Unit Direct materials ..... Direct labor... Variable manufacturing overhead .. Fixed manufacturing overhead........ Fixed selling expense............... Fixed administrative expense ........ Sales commissions ....... Variable administrative expense..... $7.00 $4.00 $1.50 $5.00 $3.50 $2.50 $1.00 $0.50

Answer 1

Answer with explanations is given below

Variable cost are those costs which varies in relation to production or sales Variable cost per unit remains same at different levels of output 1 If 18,000 units are produced and sold $7.00 Variable cost per unit Direct Material Direct Labor Variable manufacturing cost Sales commission Variable administrative expense Total variable cost per unit $4.00 $1.50 $1.00 $0.50 $14.00 2 If 22,000 units are produced and sold $7.00 $4.00 Variable cost per unit Direct Material Direct Labor Variable manufacturing cost Sales commission Variable administrative expense Total variable cost per unit $1.50 $1.00 $0.50 $14.00 3 If 18,000 units are produced and sold Total Variable cost Variable cost per unit Total Output Total Variable cost $14.00 18,000 $252,000 4 If 22,000 units are produced and sold Total Variable cost Variable cost per unit Total Output Total Variable cost $14.00 22,000 $308,000 5 If 18,000 units are produced Fixed manufacturing overhead Total output Average fixed manufacturing cost per unit $100,000 As calculated below 18,000 $5.56 working note: Total manufacturing fixed overhead Fixed manufacturing overhead per unit Output Fixed manufacturing overhead $5.00 20,000 $100,000 6 If 22,000 units are produced Fixed manufacturing overhead Total output Average fixed manufacturing cost per unit $100,000 As calculated above 22,000 $4.55 7 If 18,000 units are produced Fixed manufacturing overhead incurred to support 18,000 units of production $100,000 Explanation: Fixed overhead is constant at all levels of output 8 If 22,000 units are produced Fixed manufacturing overhead incurred to support 22,000 units of production $100,000 Explanation: Fixed overhead is constant at all levels of output