Question

Dake Corporation's relevant range of activity is 5,200 units to 6,000 units. When it produces and sells 5,600 units, its average costs per unit are as follows:

Average Cost per Unit
Direct materials	$	6.55
Direct labor	$	3.80
Variable manufacturing overhead	$	2.15
Fixed manufacturing overhead	$	3.50
Fixed selling expense	$	1.05
Fixed administrative expense	$	0.75
Sales commissions	$	0.85
Variable administrative expense	$	0.75

If 4,600 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

Multiple Choice

• $9,890

• $19,600

• $29,490

• $25,990

Answer 1

Ans.	Option 3rd $29,490
	Indirect manufacturing cost includes only fixed and variable manufacturing overhead costs.
	*Calculations for Fixed overhead ccost :
	Fixed overhead cost remains same on each level of activity. So we will calculate the fixed
	overhead cost on current level of production.
	Fixed manufacturing overhead = 5,600 * $3.50
	$19,600
	*Fixed manufacturing overhead will remain $19,600 on 4,600 units of production.
	*Calculations for Variable overhead ccost :
	Variable manufacturing overhead cost changes in the proportion of production.
	Variable manufacturing overhead = Units produced * Variable overhead per unit
	4,600 * $2.15
	$9,890
	*Calculation of total amount of indirect manufacturing cost :
	Fixed manufacturing overhead	$19,600
	Variable manufacturing overhead	$9,890
	Total indirect manufacturing cost	$29,490