Question

Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows:

	Average Cost Per Unit
Direct materials	$	5.60
Direct labor	$	3.10
Variable manufacturing overhead	$	1.40
Fixed manufacturing overhead	$	4.00
Fixed selling expense	$	2.60
Fixed administrative expense	$	2.20
Sales commissions	$	1.20
Variable administrative expense	$	0.45

1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units?

2. For financial accounting purposes, what is the total amount of period costs incurred to sell 10,000 units?

3. If 8,000 units are produced and sold, what is the variable cost per unit produced and sold?

4.If 12,500 units are produced and sold, what is the variable cost per unit produced and sold?

5. If 8,000 units are produced and sold, what is the total amount of variable costs related to the units produced and sold?

6. If 12,500 units are produced and sold, what is the total amount of variable costs related to the units produced and sold?

7. If 8,000 units are produced, what is the average fixed manufacturing cost per unit produced?

8. If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced?

9. If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

11. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis?

12. If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis?

13. If the selling price is $21.60 per unit, what is the contribution margin per unit?

14. If 10,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production

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

Answer 1

1. Total amount of product cost to make 10,000 units	$141,000
Direct material ($5.60 x 10,000)	56000
Direct labor ($3.10 x 10,000)	31000
Variable manufacturing overhead ($1.40 x 10,000)	14000
Fixed manufacturing overhead	40000
Total product cost	141000
2. Total period costs to sell 10,000 units	$64,500
Sales commissions ($1.20 x 10,000)	$12,000
Fixed selling expenses	$26,000
Variabe administrative expenses ($0.45 x 10,000)	$4,500
Fixed administrative expenses	$22,000
Total period costs	$64,500
3.If 8,000 units are produced and sold , variable cost per unit	$11.75
Direct material	$5.60
Direct labor	$3.10
Variable manufacturing overhead	$1.40
Sales commission	$1.20
Variable administrative expenses	$0.45
Total variable costs to produce and sell	$11.75
4.If 12,500 units are produced and sold , variable cost per unit	$11.75
5. Total amount of variable costs for 8,000 units produced and sold	8000 x $11.75	$94,000
6. Total amount of variable costs for 12,500 units produced and sold	12500 x $11.75	146875
7. Average fixed manufacturing cost per unit , if 8,000 units are produced	$40,000 / 8,000	$5.00
8. Average fixed manufacturing cost per unit , if 12,500 units are produced	$40,000 / 12,500	$3.20
9. Fixed manufacturing costs incurred to support the production of 8,000 units	$40,000
10. Fixed manufacturing costs incurred to support the production of 12,500 units	$40,000
11.
Total amount of manufacturing overhead cost incurred for produccing 8,000 units	$51,200
Amount of manufacturing overhead cost incurred per unit for produccing 8,000 units	$6.40
Variable manufacturing ovrhead cost for 8,000 units ($1.40 x 8,000)	$11,200
Fixed manufacturing overhead cost	$40,000
Total manufacturing overhead cost for 8,000 units	$51,200
Per unit total manufacturing cost for 8,000 units	$6.40
12.
Total amount of manufacturing overhead cost incurred for produccing 12,500 units	$57,500
Amount of manufacturing overhead cost incurred per unit for produccing 12,500 units	$7.19
Variable manufacturing ovrhead cost for 12,500 units ($1.40 x 12,500)	$17,500
Fixed manufacturing overhead cost	$40,000
Total manufacturing overhead cost for 12,500 units	$57,500
Per unit total manufacturing cost for 12,500 units	$7.19
13. Contribution margin , if the selling price is $21.60	$9.85
($21.60 - variable cost per unit from point number 3 above)
14.Total amount of direct and indirect manufacturing costs to support 10,000 units produced	$141,000
Direct material ($5.60 x 10,000)	56000
Direct labor ($3.10 x 10,000)	31000
Variable manufacturing overhead ($1.40 x 10,000)	14000
Fixed manufacturing overhead	40000
Total amount of direct and indirect manufacturing costs to support 10,000 units produced	141000
15. Incremental manufacturing costs incurred to increase production from 10,000 to 10,001 units	$10.10
Direct material	$5.60
Direct labor	$3.10
Variable manufacturing overhead	$1.40
Incremental manufacturing costs incurred to increase production from 10,000 to 10,001 units	$10.10
Working:
Within a relevant range of production and sales, the variable cost per unit is constant and the total fixed cost is constant.
Therefore we shall first find out the total cost at the level of 10,000 units.
	Per unit	Total
Production and sale	10000
Direct material	5.60	56000
Direct labor	3.10	31000
Variable manufacturing overhead	1.40	14000
Fixed manufacturing ovrhead	4.00	40000
Fixed selling expense	2.60	26000
Fixed administrative expense	2.20	22000
Sales commission	1.20	12000
Variable administrative expense	0.45	4500
Since the relevant range of production and sale is 7,500 to 12,500
the variable cost per unit and the total fixed cost remain the same
within this range for any level of activity.
Product costs are the costs incurred to manufacture.
This is the total of direct material, direct labor and manufacturing
overhead.
Period costs are the selling and administrative expenses.