Question

Balerio Corporation's relevant range of activity is 10,000 units to 15,000 units. When it produces and sells 12,000 units, its average costs per unit are as follows:

	Average Cost per Unit
Direct materials	$	7.40
Direct labor	$	4.00
Variable manufacturing overhead	$	1.30
Fixed manufacturing overhead	$	14.20
Fixed selling expense	$	2.70
Fixed administrative expense	$	1.80
Sales commissions	$	0.60
Variable administrative expense	$	0.50

Required:

a. For financial reporting purposes, what is the total amount of product costs incurred to make 12,000 units? (Do not round intermediate calculations.)

b. If 14,000 units are sold, what is the variable cost per unit sold? (Round "Per unit" answer to 2 decimal places.)

c. If 14,000 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 $19.00 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 12,000 to 12,001 units? (Round "Per unit" answer to 2 decimal places.)

Answer 1

Requirement a:-

The total amount of product costs incurred to make 12,000 units is as follows :-

No.of units	12,000
Particulars	Cost per Unit	Total
Direct Materials	7.40	88,800
Direct Labor	4.00	48,000
Variable Manufacturing overhead	1.30	15,600
Fixed Manufacturing overhead	14.20	170,400
Total Variable costs	26.90	322,800

The Total Product costs = $322,800

Requirement b:-

The variable cost per unit is calculated as:-

Particulars	Cost per Unit
Direct Materials	7.40
Direct Labor	4
Variable Manufacturing overhead	1.30
Sales commissions	0.60
Variable administrative expense	0.50
Total Variable costs	13.80

Variable cost per unit = $13.80

Requirement c:-

The total variable costs for 14,000 units is calculated as :-

=Variable cost per unit * 14,000 units sold

=$13.80 * 14,000

=$193,200

Total Variable costs for 14,000 units = $193,200

Requirement d:-

Contribution margin = Selling price per unit - Variable costs per unit

= $19 - $13.8

= 5.2

Contribution margin per unit sold = $5.20

Requirement e:-

Incremental manufacturing cost would include the following :-

Particulars	Cost per Unit
Direct Materials	7.4
Direct Labor	4
Variable Manufacturing overhead	1.30
Manufacturing cost per unit	12.70

The Incremental Manufacturing cost per unit = $12.70