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Parker Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and...

Parker 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: (18 points)

Average Cost Per Unit

Direct materials

$

5.70

Direct labor

$

3.20

Variable manufacturing overhead

$

1.60

Fixed manufacturing overhead

$

4.00

Fixed selling expense

$

2.70

Fixed administrative expense

$

2.10

Sales commissions

$

1.10

Variable administrative expense

$

0.55

If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

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Answer #1

The fixed costs are costs which do not change with respect to change in unit. Only fixed cost per unit changes with respect change in units of production.

Total fixed manufacturing for 10000 units = 10000 * $4 per unit

= $40000

Therefore, total fixed manufacturing cost incurred to support production 8000 units is same as 10000 units. That is, $40000.

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