Question

Dan 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 and sold, what is the total amount of variable costs related to the units produced and sold?

Answer 1

Variable cost per unit=Direct materials+Direct labor+Variable manufacturing overhead+Sales commissions+Variable administrative expense

=(5.7+3.2+1.6+1.1+0.55)

=$12.15 per unit

Hence total variable costs=12.15*8000

=$97200

NOTE:Total fixed costs and variable cost per unit do not change with change in units