Question

Swansea Manufacturing currently produces 1,000 tires per month. The following per unit data for 1,000 tires apply for sales to regular​ customers:

Direct materials	$37
Direct manufacturing labor	8
Variable manufacturing overhead	13
Fixed manufacturing overhead	20
Total manufacturing costs	$78

The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000​tires?

A.$120,000

B.$156,000

C.$ $87,000

D.$136,000

Answer 1

Fixed manufacturing overhead per tire when 1,000 tires are made = $20

Total Fixed manufacturing overhead = 1,000 x 20

= $20,000

Total fixed manufacturing costs would not increase when output is increased from 1,000 tires to 2,000 tires.

Cost Sheet
Direct materials ( 2,000 x 37)	74,000
Direct manufacturing labor ( 2,000 x 8)	16,000
Variable manufacturing overhead (2,000 x 13)	26,000
Fixed manufacturing overhead	20,000
Total Cost	$136,000

Correct option is D.

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