A company reported the following cost information for the last fiscal year when

Question

A company reported the following cost information for the last fiscal year when it produced 100,000 units. Direct labor $200,000 Direct materials 100,000 Manufacturing overhead 200,000 Selling and administrative expenses 150,000 All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expenses. Using flexible budgeting, what are the total costs associated with producing and selling 110,000 units?

A. $715,000

B. $450,000

C. $650,000

D. $695,000

Explanation / Answer

Hence Variable cost per unit=$450,000/100,000

=$4.5 per unit

Hence total cost  associated with producing and selling 110,000 units=Fixed cost+Variable cost

=$200,000+($4.5*110,000)

=$695000.

NOTE:Variable cost per unit and Total fixed costs do not change with change in units.

Variable cost Fixed costs Direct labor 200,000 - Direct materials 100,000 0 Manufacturing overhead (200,000-100,000)=$100,000 $100,000 Selling and administrative expenses (150000-100,000)=$50000 $100,000   Total $450,000 $200,000

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