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 . . . . . . . . . . . . . . . . . . . . . . . . $6.00

Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.50

Variable manufacturing overhead . . . . . . . $1.50

Fixed manufacturing overhead . . . . . . . . . . $4.00

Fixed selling expense . . . . . . . . . . . . . . . . . . $3.00

Fixed administrative expense . . . . . . . . . . . $2.00

Sales commissions . . . . . . . . . . . . . . . . . . . . $1.00

Variable administrative expense . . . . . . . . . $0.50

Required:

1. For financial accounting purposes, what is the total amount of product costs incurred to

make 10,000 units?

2. For financial accounting purposes, what is the total amount of period costs incurred to sell

10,000 units?

3. If 8,000 units are produced and sold, what is the variable cost per unit produced and sold?

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

5. If 8,000 units are produced and sold, what is the total amount of variable costs related to the

units produced and sold?

6. If 12,500 units are produced and sold, what is the total amount of variable costs related to the

units produced and sold?

7. If 8,000 units are produced, what is the average fixed manufacturing cost per unit produced?

8. If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced?

9. If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to

support this level of production?

10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred

to support this level of production?

11. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred

to support this level of production? What is this total amount expressed on a per unit basis?

12. If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred

to support this level of production? What is this total amount expressed on a per unit basis?

13. If the selling price is $22 per unit, what is the contribution margin per unit?

14. If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing

costs incurred to support this level of production?

15. What incremental manufacturing cost will Martinez incur if it increases production from

10,000 to 10,001 units?

Answer 1

1. Direct materials........................................... $ 6.00

Direct labor................................................. 3.50

Variable manufacturing overhead ................. 1.50

Variable manufacturing cost per unit ............ $11.00

Variable manufacturing cost per unit (a)....... $11.00

Number of units produced (b)...................... 10,000

Total variable manufacturing cost (a) × (b)... $110,000

Average fixed manufacturing overhead per unit (c) .................................................... $4.00

Number of units produced (d)...................... 10,000

Total fixed manufacturing cost (c) × (d) ....... 40,000

Total product (manufacturing) cost............... $150,000

Note: The average fixed manufacturing overhead cost per unit of $4.00 is valid for only one level of activity—10,000 units produced.

2. Sales commissions ...................................... $1.00

Variable administrative expense ................... 0.50

Variable selling and administrative per unit ... $1.50

Variable selling and admin. per unit (a) ........ $1.50

Number of units sold (b).............................. 10,000

Total variable selling and admin. expense (a) × (b) ............................................... $15,000

Average fixed selling and administrative expense per unit ($3 fixed selling + $2 fixed admin.) (c)....................................... $5.00

Number of units sold (d).............................. 10,000

Total fixed selling and administrative expense (c) × (d)..................................... 50,000

Total period (nonmanufacturing) cost........... $65,000

Note: The average fixed selling and administrative expense per unit of $5.00 is valid for only one level of activity—10,000 units sold. 

 

3. Direct materials....................................... $ 6.00

Direct labor............................................. 3.50

Variable manufacturing overhead ............. 1.50

Sales commissions................................... 1.00

Variable administrative expense ............... 0.50

Variable cost per unit sold........................ $12.50

 

4. Direct materials....................................... $ 6.00

Direct labor............................................. 3.50

Variable manufacturing overhead ............. 1.50

Sales commissions................................... 1.00

Variable administrative expense ............... 0.50

Variable cost per unit sold........................ $12.50

 

5. Variable cost per unit sold (a) .................. $12.50

Number of units sold (b).......................... 8,000

Total variable costs (a) × (b).................... $100,000

 

6. Variable cost per unit sold (a) .................. $12.50

Number of units sold (b).......................... 12,500

Total variable costs (a) × (b).................... $156,250

 

7. Total fixed manufacturing cost (see requirement 1) (a)......................... $40,000

Number of units produced (b).................. 8,000

Average fixed manufacturing cost per unit produced (a) ÷ (b) ............................... $5.00

 

8. Total fixed manufacturing cost (see requirement 1) (a)......................... $40,000

Number of units produced (b).................. 12,500

Average fixed manufacturing cost per unit produced (a) ÷ (b) ............................... $3.20

 

9. Total fixed manufacturing cost (see requirement 1).............................. $40,000 

 

10. Total fixed manufacturing cost (see requirement 1)................................ $40,000

 

11. Variable overhead per unit (a)..................... $1.50

Number of units produced (b)..................... 8,000

Total variable overhead cost (a) × (b) ......... $12,000

Total fixed overhead (see requirement 1)..... 40,000

Total manufacturing overhead cost.............. $52,000

Total manufacturing overhead cost (a)......... $52,000

Number of units produced (b)..................... 8,000

Manufacturing overhead per unit (a) ÷ (b)... $6.50

 

12. Variable overhead per unit (a)..................... $1.50

Number of units produced (b)..................... 12,500

Total variable overhead cost (a) × (b) ......... $18,750

Total fixed overhead (see requirement 1)..... 40,000

Total manufacturing overhead cost.............. $58,750

Total manufacturing overhead cost (a)......... $58,750

Number of units produced (b)..................... 12,500

Manufacturing overhead per unit (a) ÷ (b)... $4.70

 

13. Selling price per unit................................... $22.00

Variable cost per unit sold (see requirement 4)................................. 12.50

Contribution margin per unit....................... $ 9.50 

 

14. Direct materials per unit ............................. $6.00

Direct labor per unit ................................... 3.50

Direct manufacturing cost per unit .............. $9.50

Direct manufacturing cost per unit (a) $9.50

Number of units produced (b)..................... 11,000

Total direct manufacturing cost (a) × (b)..... $104,500

Variable overhead per unit (a)..................... $1.50

Number of units produced (b)..................... 11,000

Total variable overhead cost (a) × (b) ......... $16,500

Total fixed overhead (see requirement 1)..... 40,000

Total indirect manufacturing cost................. $56,500

 

15. Direct materials per unit ............................. $6.00

Direct labor per unit ................................... 3.50

Variable manufacturing overhead per unit.... 1.50

Incremental cost per unit produced............. $11.00

Note: Variable selling and administrative expenses are variable with respect to the number of units sold, not the number of units produced.