If the number of units produced increases from 900 to 1,200, which is within the relevant range, cost per unit will decrease.

If the number of units produced increases from 900 to 1,200, which is within the relevant range, cost per unit will decrease. Therefore, we should recommend that Columbia Products increase its production to reduce its costs. Do you agree? Explain why or why not? What other cost, if any, should be considered?.

Expert Solution

The statement is Correct. When production is increased within the capacity of company the fixed cost do not increase with the increase in production. This is Because Fixed Cost remains same within a particular range of production. Fixed cost continues to occur even if no production is done.

When production is increased within the capacity of company the burden of fixed cost spreads on all the units produced. Fixed cost per unit is more when production is low and Vice versa. Overall cost of product decreases with increase in production.

Let’s take an example to understand this more clearly.

A company has a capacity to produce 1200 units at a fixed cost of 150000. Current production is 900 units.

If we calculated fixed cost per unit at 900 units produced then it will be $166.67 per unit ($150000/900)

Although if production increases to 1200 units fixed cost per unit would reduce to $ 125 ($ 150000/1200).

Getting back to data provided in the question if the number of units produced increases from 900 to 1,200, which is within the relevant range, cost per unit will decrease due to reasons stated above.

ekkarill92 answered 2 years ago

1. If the level of activity increases within relevant range: a. variable cost per unit and...

1. If the level of activity increases within relevant range: a. variable cost per unit and total fixed cost stay the same b. fixed cost per unit and total variable cost increase c. variable cost per unit and total cost increase d. total cost will increase and fixed cost per unit stays same 2. Which of the following statements is incorrect about the Cost-Volume-Profit graph? a. The assumption that volume is the only factor affecting total cost b. The assumption...

As the activity level increases, which of the following will decrease? A. Variable cost per unit...

As the activity level increases, which of the following will decrease? A. Variable cost per unit B. Fixed cost in total C. Fixed cost per unit D. Variable cost in total

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

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 UnitDirect materials$ 5.60Direct labor$ 3.10Variable manufacturing overhead$ 1.40Fixed manufacturing overhead$ 4.00Fixed selling expense$ 2.60Fixed administrative expense$ 2.20Sales commissions$ 1.20Variable administrative expense$ 0.454. If 12,500 units are produced and sold, what is the variable cost per unit produced and sold? (Round your answer to 2 decimal places.)

1. If 18,000 units are produced and sold, what is the variable cost per unit produced and sold?

Refer to the data given in Exercise 1-7. Answer all questions independently. Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows: Required: 1. If 18,000 units are produced and sold, what is the variable cost per unit produced and sold? 2. If 22,000 units are produced and sold, what is the variable cost per unit produced and sold? 3. If 18,000 units are...

When output volume increases, do variable costs per unit increase, decrease, or stay the same within...

When output volume increases, do variable costs per unit increase, decrease, or stay the same within the relevant range of activity? How can absorption costing lead to incorrect short-run pricing decisions?

Problem Information: McDees Corporation’s relevant range of production is 10,000 – 15,000 units. Average per unit...

Problem Information: McDees Corporation’s relevant range of production is 10,000 – 15,000 units. Average per unit costs when producing 12,000 units is: Direct Materials $6.00 Direct Labor $8.00 Fixed MOH $3.00 Fixed Selling and Administrative expense $4.00 Variable MOH $5.00 Variable Selling and Administrative expense $2.00 For each of the following questions show calculations to arrive at your answer. 1. Total manufacturing costs to produce 12,000 units is: 2. Total costs to produce and sell 12,000 units is: 3. If...

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:

Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it producesand sells 10,000 units, its average costs per unit are as follows:Average Costper UnitDirect materials . . . . . . . . . . . . . . . . . . . . . . . . $6.00Direct labor . . . . . . . . . . . . . . . . . . . . . . . . ....

Saxbury Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 4,800 units, its average costs per unit are as follows:

Saxbury Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 4,800 units, its average costs per unit are as follows: AverageCost per Unit Direct materials $ 6.00 Direct labor $ 3.90 Variable manufacturing overhead $ 1.60 Fixed manufacturing overhead $ 4.50 Fixed selling expense $ 0.70 Fixed administrative expense $ 0.55 Sales commissions $ 0.45 Variable administrative expense $ 0.45 Required: a....

Which of the following is not an example of a cost that varies in total as the number of units produced changes?

Which of the following is not an example of a cost that varies in total as the number of units produced changes? a. wages of assembly worker b. straight-line depreciation on factory equipment c. direct materials cost d. electricity per KWH to operate factory equipment

martinez company's relevant range of production is 7500 unit to 12500 units. when it products and...

martinez company's relevant range of production is 7500 unit to 12500 units. when it products and sells 10000 units, its average cost unit are as follow: Ave cost per unit direct materials $5.40 direct labor 2.90 variable manufacturing overhead 1.60 fixed manufacturing overhead 4.00 fixed selling expenses 2.40 fixed administrative expense 2.10 sales commissions 1.10 variable administrative expense 0.55 If 12500 unit are produced, what is the average fixed manufacturing cost per unit produced? (round your answer to 2 decimal...

Question