Question

 Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows:

Refer to the data given in Exercise 1–7. Answer all questions independently.

Required:

1. What is the incremental manufacturing cost incurred if the company increases production from 20,000 to 20,001 units?

2. What is the incremental cost incurred if the company increases production and sales from 20,000 to 20,001 units?

3. Assume that Kubin Company produced 20,000 units and expects to sell 19,800 of them. If a new customer unexpectedly emerges and expresses interest in buying the 200 extra units that have been produced by the company and that would otherwise remain unsold, what is the incremental manufacturing cost per unit incurred to sell these units to the customer?

4. Assume that Kubin Company produced 20,000 units and expects to sell 19,800 of them. If a new customer unexpectedly emerges and expresses interest in buying the 200 extra units that have been produced by the company and that would otherwise remain unsold, what incremental selling and administrative cost per unit is incurred to sell these units to the customer?

Answer 1

1. Direct materials....................................... $ 7.00

Direct labor............................................. 4.00

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

Total incremental cost.............................. $12.50

2. Direct materials....................................... $ 7.00

Direct labor............................................. 4.00

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

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

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

Variable cost per unit sold........................ $14.00

3. Because the 200 units to be sold to the new customer have already been produced, the incremental manufacturing cost per unit is zero. The variable manufacturing costs incurred to make these units have already been incurred and, as such, are sunk costs.

 4. Sales commission.................................... $1.00

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

Variable cost per unit sold........................ $1.50

1. Total incremental cost.............................. $12.50

2. Variable cost per unit sold........................ $14.00

3. Because the 200 units to be sold to the new customer have already been produced, the incremental manufacturing cost per unit is zero. The variable manufacturing costs incurred to make these units have already been incurred and, as such, are sunk costs.

 4. Variable cost per unit sold........................ $1.50