Question

Saxbury Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,400 units, its average costs per unit are as follows:

	Average Cost per Unit
Direct materials	$	5.30
Direct labor	$	3.55
Variable manufacturing overhead	$	1.60
Fixed manufacturing overhead	$	4.00
Fixed selling expense	$	0.70
Fixed administrative expense	$	0.55
Sales commissions	$	0.45
Variable administrative expense	$	0.45

Required:

i. If 4,400 units are produced, what is the total amount of direct manufacturing cost incurred?

j. If 4,400 units are produced, what is the total amount of indirect manufacturing cost incurred?

k. What incremental manufacturing cost will the company incur if it increases production from 5,400 to 5,401 units? (Round "Per unit" answer to 2 decimal places.)

Answer 1

Saxbury Corporation

1. Determination of total amount of manufacturing costs incurred, if 4,400 units are produced:

Direct manufacturing cost per unit –

Direct material$5.30

Direct labor $3.55

Variable MOH$1.60

Total variable cost per unit $10.45

Total variable cost for 4,400 units = $10.45 x 4,400 = $45,980

Total direct manufacturing cost incurred = $45,980

j. Determination of total amount of indirect manufacturing cost incurred if 4,400 units are produced:

total amount of indirect manufacturing cost incurred is the fixed manufacturing overhead.

Fixed manufacturing cost = $4 x 5,400 units = $21,600

Hence, the total amount of indirect manufacturing cost incurred = $21,600

The variable cost per unit remains constant for any level of output.

The direct fixed manufacturing overhead in whole remains constant for the relevant range. Hence, the fixed cost for any output between the range of 3,000 to 7,000 units would be $4 x 5,400 units = $21,600.

k. Determination of the incremental manufacturing cost the company would incur if it increases production from 5,400 units to 5,401 units –

the incremental manufacturing cost for increase in 1 unit production (5,401 – 5,400) is the direct manufacturing cost per unit.

The incremental manufacturing cost for increase in 1 unit production is as follows,

Direct material$5.30

Direct labor $3.55

Variable MOH$1.60

Total variable cost per unit $10.45

Hence, the incremental manufacturing cost for increase in production from 5,400 units to 5,401 units = $10.45