Question

Martinez Company's relevant range of production is 7,500 units. when it produces and sells 10,000 unites. its average cost per unit are as follows : direct materials $ 6 direct labor$3.5 variable manufacturing overhead $1.5 fixed manufacturing overhead $4 fixed selling expense $3 fixed administrative expense $2 sales commissions $1 variable administrative expense $0.5

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

Answer 1

incremental manufacturing cost = $11 (per unit variable manufacturing costs)

Variable manufacturing cost per unit = direct materials + direct labor + variable manufacturing overhead = 6+3.5+1.5 = $11

with an increase of 1 unit, the total cost will only increase by the amount of variable cost required to produce one unit as the total fixed cost remains constant. the variable cost varies directly with the level of production.