Question

TB Problem Qu. 1-288 Balerio Corporation's relevant ...

Balerio Corporation's relevant range of activity is 8,000 units to 11,000 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	$	3.20
Variable manufacturing overhead	$	1.50
Fixed manufacturing overhead	$	14.40
Fixed selling expense	$	2.80
Fixed administrative expense	$	2.00
Sales commissions	$	0.80
Variable administrative expense	$	0.70

Required:

a. For financial reporting purposes, what is the total amount of product costs incurred to make 10,000 units? (Do not round intermediate calculations.)

b. If 9,000 units are sold, what is the variable cost per unit sold? (Round "Per unit" answer to 2 decimal places.)

c. If 9,000 units are sold, what is the total amount of variable costs related to the units sold? (Do not round intermediate calculations.)

d. If the selling price is $19.20 per unit, what is the contribution margin per unit sold? (Round "Per unit" answer to 2 decimal places.)

e. What incremental manufacturing cost will the company incur if it increases production from 10,000 to 10,001 units? (Round "Per unit" answer to 2 decimal places.)

Answer 1

a.

Product cost = Direct material + Direct labor + Manufacturing overhead cost incurred

Product cost for 10,000 units = ($ 6.40 + $ 3.20 + $ 1.50 + $ 14.40) x 10,000

                                                    = $ 25.50 x 10,000 = $ 255,000

b.

Variable cost per unit sold = Direct material + Direct labor + Variable Manufacturing overhead cost +

Sales commission + Variable administrative expense = $ 12.60

c.

Variable cost related to 9,000 units sold = Variable cost per unit sold x 9,000

                                                                     = $ 12.60 x 9,000 = $ 113,400

d.

Contribution margin per unit = Sales – Variable cost

                                      = $ 19.20 - $ 12.60 = $ 6.6

e.

	Per unit	For 10,000 units	For 10,001 units
Direct material	$                   6.40	$           64,000.00	$            64,006.40
Direct labor	$                   3.20	$           32,000.00	$            32,003.20
Variable manufacturing overhead	$                   1.50	$           15,000.00	$            15,001.50
Fixed manufacturing overhead	$                 14.40	$         144,000.00	$         144,014.40
Total manufacturing cost	$                 25.50	$         255,000.00	$         255,025.50

Incremental manufacturing cost = $ 255,025.50 - $ 255,000 = $ 25.50

As the relevant range of activity is 8,000 to 11,000; fixed manufacturing overhead cost per unit is same for both 10,000 and 10,001 units of production levels. Hence incremental manufacturing cost for 10,000 to 10,001 units will be only the manufacturing cost for producing one unit.