Manufacturing incurs costs of $95 ($90 variable and $5 fixed) to make a product that normally...

Manufacturing incurs costs of $95 ($90 variable and $5 fixed) to make a product that normally sells for $120. A customer offers to buy 4,200 units at $90 each.

What is the total manufacturing cost?

Expert Solution

Total Manufacturing Cost:-

Variable Costs $90

Add:- Fxed Costs $5

Total Manufacturing Costs $95

Since variable costs and fixed costs are formed part of total manufacturing cost. Fixed costs of $5 is incurred irrespective of regular sales or sales to the customer.

In above case, the customer wants to purchase units @ $90 each. If company has an extra production capacity it can sell to the customer @ $90 each since fixed costs will incurred whether it produced extra units or not since fixed costs do not vary with production units. But if company does not have any extra production capacity, it can decide not to sell at $90 because company can sell in regular market @ $1200 each.

So, in case if company has extra production capacity:-

Manufacturing costs will include $90 (variable costs only).

ekkarill92 answered 1 year ago

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Manufacturing incurs costs of $95 ($90 variable and $5 fixed) to make a product that normally...

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