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XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently,...

XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently, XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?

a) Total manufacturing costs will increase and unit manufacturing costs will also increase.

b) Total manufacturing costs will stay the same and unit manufacturing costs will stay the same

c) Total manufacturing costs will increase and unit manufacturing costs will also decrease.

d) Total manufacturing costs will increase and unit manufacturing costs will stay the same

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Answer #1

The answer is option c) : Total manufacturing costs will increase and unit manufacturing costs will also decrease.

Explanation : Manufacturing cost includes direct materials, direct labor, variable manufacturing overhead and fixed manufacturing overhead. Here, the first three expenses are variable. So, as the production increases from 40000 to 45000, the total manufacturing cost will increase, but because of the fixed manufacturing cost, the unit manufacturing cost will decrease

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