Dake Corporation\'s relevant range of activity is 2,000 units to 5,000 units. Wh

Question

Dake Corporation's relevant range of activity is 2,000 units to 5,000 units. When it produces and sells 3,500 units, its average costs per unit are as follows:

If 2,500 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

**please show indirect cost/formula**

Average Cost per Unit Direct materials $ 6.75 Direct labor $ 3.90 Variable manufacturing overhead $ 1.50 Fixed manufacturing overhead $ 4.00 Fixed selling expense $ 1.10 Fixed administrative expense $ 0.80 Sales commissions $ 0.90 Variable administrative expense $ 0.80

Explanation / Answer

Indirect manufacturing cost incurred = indirect labour + indirect material + indirect manufacturing expenses

In this question indirect material and indirect labour is not given so indirect cost of manufacturing will be total of variable manufacturing expenses and fixed manufacturing expenses.

Total indirect manufacturing cost incurred = variable manufacturing expenses + fixed manufacturing expenses

Variable cost = $1.50 * 2500 units= $3750

Fixed overhead = 3500*$4= $14000

Total indirect manufacturing cost incurred = $14000+$3750= $17750

Indirect manufacturing cost incurred is $17750

Note. 1. Variable cost per unit remain same.

2. Fixed cost per unit decrease as volume increase . That's why 3500 units multiplied by $4 . So $14000 cost will be remain same from 2000 units to 5000 units

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