Question

Dake Corporation's relevant range of activity is 3,100 units to 6,500 units. When it produces and sells 4,800 units, its average costs per unit are as follows:

	Average Cost per Unit
Direct materials	$	7.00
Direct labor	$	3.10
Variable manufacturing overhead	$	1.75
Fixed manufacturing overhead	$	3.00
Fixed selling expense	$	1.05
Fixed administrative expense	$	0.75
Sales commissions	$	0.85
Variable administrative expense	$	0.75

If 3,800 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

Answer 1

If 3,800 units are produced, the total amount of indirect manufacturing cost incurred is closest to $21050

Explanation and working

Indirect manufacturing costs are production costs other than direct materials and direct labor. Indirect manufacturing costs are also called as manufacturing overhead, factory overhead.

Required Quantity		3800
Manufacturing Cost
Variable Manufacturing cost	1.75×3800	6650
Fixed Manufacturing Cost	3.00×4800	14400
Total Indirect Manufacturing cost for 3800 unit		$21050

Notes

1)Variable cost are the cost that changes with change in Quantity hence , it will be calculated based on the actual Quantity for which question has been asked

2) Fixed cost are the cost that are not based on Quantity and does not changes with change in production unit , as the average rate for fixed cost is given for 4800 unit , fixed cost will be calculated on that Quantity as the total fixed cost will remains same even 3800 unit produce.

Fixed cost are fixed in total and varies when it calculated per unit.

3) Direct material and labour are direct cost , will not be included in above calculation

4) selling and administration expenses are after production cost and are period cost and will not form part of product cost calculation.