Question

Munchak Company’s relevant range of production is between 9,000 and 11,000 units. Last month the company produced 10,000 units. Its total manufacturing cost per unit produced was $70. At this level of activity the company’s variable manufacturing costs are 40% of its total manufacturing costs.

Required:

Assume that next month Munchak produces 10,050 units and that its cost behavior patterns remain unchanged. Label each of the following statements as true or false with respect to next month. Do not use a calculator to answer items 1 through 6. You can use a calculator to answer items 7 through 12. Record your answers by placing an X under the appropriate heading.

Answer 1

1. True. The variable manufacturing cost per unit will remain the same within the relevant range.

2. False. The total fixed manufacturing cost will remain the same within the relevant range.

3. True. The total variable manufacturing cost will increase, so the total manufacturing cost will increase too.

4. True. The average fixed manufacturing cost per unit will decrease as the level of activity increases.

5. False. The total variable manufacturing cost will increase (rather than decrease) as the activity level increases.

6. False. The variable manufacturing cost per unit will remain the same, but the average fixed manufacturing cost per unit will decrease as the level of activity increases.

7. True. The variable manufacturing cost per unit of $28 will stay constant within the relevant range. The $28 figure is computed as follows:

Total manufacturing cost per unit (a).................. $70.00

Variable manufacturing cost percentage (b) ........ 40%

Variable manufacturing cost per unit (a) × (b) .... $28.00

8. False. The total fixed manufacturing cost of $420,000 does not change within the relevant range. The $420,000 figure is computed as follows:

Total manufacturing cost per unit (a).................................................... $70.00

Variable manufacturing cost per unit (b) .............................................. 28.00

Average fixed manufacturing cost per unit (a) ‒ (b).............................. $42.00

Number of units produced........................ × 10,000

Total fixed manufacturing cost.................. $420,000 

1. True. The variable manufacturing cost per unit will remain the same within the relevant range.

2. False. The total fixed manufacturing cost will remain the same within the relevant range.

3. True. The total variable manufacturing cost will increase, so the total manufacturing cost will increase too.

4. True. The average fixed manufacturing cost per unit will decrease as the level of activity increases.

5. False. The total variable manufacturing cost will increase (rather than decrease) as the activity level increases.

6. False. The variable manufacturing cost per unit will remain the same, but the average fixed manufacturing cost per unit will decrease as the level of activity increases.

7. True. The variable manufacturing cost per unit of $28 will stay constant within the relevant range. The $28 figure is computed as follows:

Total manufacturing cost per unit (a).................. $70.00

Variable manufacturing cost percentage (b) ........ 40%

Variable manufacturing cost per unit (a) × (b) .... $28.00

8. False. The total fixed manufacturing cost of $420,000 does not change within the relevant range. The $420,000 figure is computed as follows:

Total manufacturing cost per unit (a).................................................... $70.00

Variable manufacturing cost per unit (b) .............................................. 28.00

Average fixed manufacturing cost per unit (a) ‒ (b).............................. $42.00

Number of units produced........................ × 10,000

Total fixed manufacturing cost.................. $420,000