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	$	6.40
Direct labor	$	3.90
Variable manufacturing overhead	$	1.40
Fixed manufacturing overhead	$	4.00
Fixed selling expense	$	3.40
Fixed administrative expense	$	2.10
Sales commissions	$	1.10
Variable administrative expense	$	0.55

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

Answer 1

Total Product cost	=	$                                       1,57,000
Workings:
Computation of Product cost:
Product cost	=	Direct material cost + Direct labor cost + Manufacturing overheads
Direct material cost	=	($6.40 X 10,000 units)	=	$     64,000
Direct labor	=	($3.90 X 10,000 units)	=	$     39,000
Manufacturing overheads:
Variable manufacturing overhead	=	($1.40 X 10,000 units)	=	$     14,000
Fixed manufacturing overhead	=	($4.00 X 10,000 units)	=	$     40,000
Manufacturing overheads	=		=	$     54,000
Total Product cost	=	($64,000 + $39,000 + $54,000)	=	$ 1,57,000