Question

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 administrative expense Sales commissions Variable administrative expense Average Cost per Unit $6.00 $3.50 $1.50 $4.00 $3.00 $2.00 $1.00 $0.50

8) If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced?

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

10)  If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

11)  If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis?

12)  If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis?

13) If the selling price is $22 per unit, what is the contribution margin per unit?

14) If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production?

15) What incremental manufacturing cost will Martinez incur if it increases production from 10,000 to 10,001 units?

Answer 1

8.

Fixed manufacturing cost per unit at 12,500 units = (Fixed manufacturing overhead per unit * 10,000) / 12,500

= ($4.00 * 10,000) / 12,500

= $40,000 / 12,500

= $3.20

9.

Total amount of fixed manufacturing cost = 10,000 * $4.00

= $40,000

Fixed manufacturing cost is fixed at all level of output.

10.

Total amount of fixed manufacturing cost at 12,500 units = Fixed manufacturing cost per unit at 12,500 units * Units

= $3.20 * 12,500

= $40,000

11.

Variable manufacturing overhead at 8,000 units = 8,000 * $1.50

= $12,000

Fixed manufacturing overhead = $40,000

Total manufacturing overhead = $12,000 + $40,000

= $52,000

Total manufacturing overhead per unit = $52,000 / 8,000

= $6.50

12.

Variable manufacturing overhead at 12,500 units = 12,500 * $1.50

= $18,750

Fixed manufacturing overhead = $40,000

Total manufacturing overhead = $18,750 + $40,000

= $58,750

Total manufacturing overhead per unit = $58,750 / 12,500

= $4.70

13.

Contribution margin per unit = Selling price - Variable cost per unit

Variable cost per unit = Direct material + Direct labor + Variable manufacturing overhead + Sales commission + Variable administrative expenses

= $6.00 + $3.50 + $1.50 + $1.00 + $0.50

= $12.50

Contribution margin per unit = $22 - $12.50

= $9.50

14.

Direct manufacturing costs = (Direct materials + Direct labor) * Units

= ($6.00 + $3.50) * 11,000

= $104,500

Indirect manufacturing costs = (Variable manufacturing overhaed * 11,000) + Fixed manufacturing overhead

= ($1.50 * 11,000) + ($4.00 * 10,000)

= $16,500 + $40,000

= $56,500

15.

Incremental manufacturing costs = (10,001 - 10,000) * (Direct materials + Direct labor + Variable manufacturing costs)

= 1 * ($6.00 + $3.50 + $1.50)

= $11