Question

Required information Cost Classifications (Algo) [The following information applies to the questions displayed below.] Kubin Company's relevant range of production is 12,000 to 16,000 units. When it produces and sells 14,000 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 $7.30 $4.30 $1.80 $5.30 $3.80 $2.80 $1.30 $0.80 Exercise 1-10 (Algo) Differential Costs and Sunk Costs (L01-5] Required: 1. What is the incremental manufacturing cost incurred if the company increases production from 14,000 to 14,001 units? 2. What is the incremental cost incurred if the company increases production and sales from 14,000 to 14,001 units?

Answer 1

Since sales are within the given range, the fixed cost won't change. Since all the fixed cost are recovered in exisitng sales they are not relevant for computaiton. Hence, Incremental cost of manufacturing ($)

1. Direct Material	7.30
   Direct Labor	4.30
   Variable Manufacturing overhead	1.80
   Total incremental cost of manufacturing	13.40

2. As explained fixed cost isn't relevant. Thus,

Incremental cost ($)

Total incremental cost of manufacturing	13.40
Sales commission	1.30
Variable administrative expenses	0.80
Incremental cost	15.50