Question

Saxbury Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 4,500 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 6.30 Direct labor $ 3.20 Variable manufacturing overhead $ 1.90 Fixed manufacturing overhead $ 3.90 Fixed selling expense $ 0.85 Fixed administrative expense $ 0.70 Sales commissions $ 0.60 Variable administrative expense $ 0.60 Required:

a. If 5,500 units are sold, what is the variable cost per unit sold? (Round "Per unit" answer to 2 decimal places.)

b. If 5,500 units are sold, what is the total amount of variable costs related to the units sold?

c. If 5,500 units are produced, what is the average fixed manufacturing cost per unit produced? (Round "Per unit" answer to 2 decimal places.)

d. If 5,500 units are produced, what is the total amount of fixed manufacturing cost incurred?

e. If 5,500 units are produced, what is the total amount of manufacturing overhead cost incurred? What is this total amount expressed on a per unit basis? (Round "Per unit" answer to 2 decimal places.)

f. What incremental manufacturing cost will the company incur if it increases production from 4,500 to 4,501 units? (Round "Per unit" answer to 2 decimal places.)

Answer 1

Solution:

Variable cost per unit at 4500 unit level= Direct material + Direct Labor + Variable manufacturing overhead + Sales Commissions + Vairable administrative expenses

= $6.30 + $3.20 + $1.90 + $0.60 + $0.60 = $12.60 per unit

Fixed cost per unit at 4500 unit level = Fixed manufacturing overhead + Fixed Selling expense + Fixed administrative expense

= $3.90 + $0.85 + $0.70 = $5.45 per unit

Total fixed cost = 4500 * 5.45 = $24,525

a. If 5500 units are sold, variable cost per unit will remain the same as in volume of 4500 unit sold, therefore variable cost per unit 5500 level is $12.60 per unit.

b.Total Variable Cost = 5500 * 12.60 = $69,300

c. Fixed manufacturing cost = Fixed manufacturing overhead = 4500*3.90 = $17,550

Average fixed manufacturing cost per unit at 5500 level = $17,550/5500 = $3.19 per unit

d. Total fixed manufacturing cost at level of 5500 units = $17,550

e. Total manufacturing overhead = Variable manufacturing overhead + Fixed manufacturing overhead

Total manufactuing overhead at level 5500 units = 5500*1.90 + 17550 =$28,000

Average manufacturing overhead per unit = $28,000/5500 = $5.09 per unit

f. If company increases production from 4500 to 4501 units then company will incur additional variable cost only.

Therefore incremental manufacturing cost for 1 unit = $6.30 + $3.20 + $1.90 = $11.40