Question

The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product: Production volume 1,000 units 3,000 units Direct materials $13.20 per unit $13.20 per unit Direct labor $14.50 per unit $14.50 per unit Manufacturing overhead $65.40 per unit $29.40 per unitThe best estimate of the total cost to manufacture 1,200 units is closest to: $100,920 $111,720 $90,120 $68,520

Answer 1

Answer: Option (a) is correct.

Explanation:

Total manufacturing overhead at 1000 units:

= Production volume × Manufacturing overhead per unit

= 1,000 × $65.40 per unit

= $65,400

Total manufacturing overhead at 3000 units:

= Production volume × Manufacturing overhead per unit

= 3,000 × $29.40 per unit

= $88,200

Therefore,

$Cost\ per\ unit=\frac{variable\ cost}{unit\ for\ manufacturing\ overhead}$

$=\frac{88,200-65,400}{3000-1000}$

      = $11.4/unit

Fixed costs for manufacturing overhead = Total manufacturing overhead at 3000 units - (Production volume × Cost per unit)

                                         = $88,200 - (3000 × 11.4)

                                         = $54000.

Total cost to manufacture 1200 units = Direct materials cost + Direct labor + manufacturing overheads

                                                              = (13.2+14.5+11.4) × 1,200 + 54,000

                                                              = $100,920

Answer 2

The amount of $100,920 is the best estimate of the total cost to manufacture 1,200 units .

What is the total manufacturing overhead?

At 1000 units

= Production volume × Manufacturing overhead per unit

= 1,000 × $65.40 per unit

= $65,400

At 3000 units:

= Production volume × Manufacturing overhead per unit

= 3,000 × $29.40 per unit

= $88,200

What is Cost of Unit?

= Variable cost / Unit for manufacturing overhead

= $88,200 - $65,400 / 3,000 - 1000

= $22.800/ 2,000

= $11.40

What is the Fixed costs for manufacturing overhead?

= Total manufacturing overhead at 3000 units - (Production volume × Cost per unit)

= $88,200 - (3000 × 11.40)

= $88,200 - $34,200

= $54,000

What is the total cost to manufacture 1200 units?

= Direct materials cost + Direct labor + manufacturing overheads

= (13.2+14.5+11.4)*1,200 + $54,000

= $39.10*1,200 + $54,000

= $46,920 + $54,000

= $100,920

Therefore, the Option A is correct.

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