Question

Required information [The following information applies to the questions displayed below) 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: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed nistrative expense Sales commissions Variable administrative expense Average Cost Per Unit $5.00 $2.50 $1.40 $4.00 $2.09 $2.20 $1.29 50.45 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units? (Do not round intermediate calculations.) Total product cost

Answer 1

Product cost – Product costs are those costs that are incurred to manufacture (or) to acquire a product. In other words, product costs are those costs that are included in the unit cost of a product.

For a manufacturing company, product cost includes direct material cost, direct labor cost and manufacturing overheads.

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Examples of Product cost:

• Direct material
• Direct Labor
• Manufacturing overhead – Utilities used in factory, depreciation of production equipment, salary paid to production supervisor, etc....

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Total product cost      [Refer the working note below]

$129,000

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Working note - Calculation of total product cost
Direct materials                                 [10,000 units x $5 per unit]	$50,000
Direct labor                                        [10,000 units x $2.50 per unit]	$25,000
Variable manufacturing overhead       [10,000 units x $1.40 per unit]	$14,000
Fixed manufacturing overhead            [10,000 units x $4 per unit]	$40,000
Total product cost	$129,000