Question

Schonhardt corporation's relevant range activity is 4,900 units to 5,500 units. When it produces and sells 5,200 units, its average costs per unit are as follows:

Direct Materials $8.00

Direct labor $3.70

Variable manufacturing overhead $2.05

Fixed manufacturing overhead $3.00

Fixes selling expense $1.35

Fixed administrative expense $1.05

Sales commissions $1.15

Variable administrative expense $1.05

If 4,500 units are produced, the total amount of fixed manufacturing cost incurred is closest to:

A) $30,160

B) $22,620

C) $21,060

D) $15,600

Answer 1

Answer:

Correct answer is:

D) $15,600

Explanation:

Given that:

When it produces and sells 5,200 units, its average fixed manufacturing overhead costs per unit = $3.00

As such total fixed manufacturing cost = 5,200 * $3 = $15,600

Fixed cost normally remains same. Since 4,500 units are lesser than the lower limit of relevant range for above cost figures, the fixed manufacturing cost for 4,500 units will be closest to this (there is possibility that it may be little lesser). Options A, B and C are higher amounts than $15,600

Hence option D is correct and other options A, B and C are incorrect.