Question

Kubin Company’s relevant range of production is 24,000 to 31,000 units. When it produces and sells 27,500 units, its average costs per unit are as follows:

Amount per Unit Direct materials $ 8.40 Direct labor $ 5.40 Variable manufacturing overhead $ 2.90 Fixed manufacturing overhead $ 6.40 Fixed selling expense $ 4.90 Fixed administrative expense $ 3.90 Sales commissions $ 2.40 Variable administrative expense $ 1.90

1. What is the incremental manufacturing cost incurred if the company increases production from 27,500 to 27,501 units? 2. What is the incremental cost incurred if the company increases production and sales from 27,500 to 27,501 units? 3. Assume that Kubin Company produced 27,500 units and expects to sell 27,160 of them. If a new customer unexpectedly emerges and expresses interest in buying the 340 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 27,500 units and expects to sell 27,160 of them. If a new customer unexpectedly emerges and expresses interest in buying the 340 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

in the given question,

Variable Manufacturing cost = Direct Material Cost + Direct Labour Cost + Variable manufacturing overhead = 8.4 + 5.4 + 2.9 = 16.7

Variable Adminstrative expenses = 1.90

Variable Selling cost = 2.40

Since the nornal capacity of the comapny is between 24000 units to 31000 units, therefore when production is increased from 27500 to 27501, no incremental fixed cost is incurred.

1.   incremental manufacturing cost incurred if the company increases production from 27,500 to 27,501 units = 16.7

2.  incremental cost incurred if the company increases production and sales from 27,500 to 27,501 units = 16.7 +1.90 + 2.40 = 21

3. incremental manufacturing cost per unit incurred to sell 340 units to the customer = 0 ( as these units are already manufactured, no incremental manufacturing cost is incurred)

4.  incremental selling and administrative cost per unit is incurred to sell 340 units to the customer = 2.40 * 340 = 816