\"Harris Company manufactures a single product. Costs for the year 2015 for outp

Question

"Harris Company manufactures a single product. Costs for the year 2015 for output levels of 1,000 and 2,000 units are given below:

For 1,000 units - Direct labor is $35,000 Direct materials is $25,000 Overhead: Variable portion 15,000 Fixed portion 36,000 Selling and administrative costs: Variable portion 6,300 Fixed portion 24,000

For 2,000 units - Direct labor is $70,000 Direct materials is $50,000 Overhead: Variable portion 30,000 Fixed portion 36,000 Selling and administrative costs: Variable portion 12,600 Fixed portion 24,000

What is the total cost ($) if the firm produces 1,600 units?"

Explanation / Answer

Variable costs:

Direct labour cost = $35000/1000 = $35/unit

Direct materials cost = $25000/1000 = $25/unit

Overhead = $15000/1000 = $15/unit

S & A cost = $6300/1000 = $6.3/unit

Fixed costs = 36000 + 24000 = $60000

Total cost when Q = 1600 :

TC = FC + AVC x Q

TC = 60000 + 1600 x (35 + 25 + 15 + 6.3) = $190080

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