Babuca Corporation has provided the following production and total cost data for

Question

Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume 10,500 units 12,000 units Direct materials $647,850 $740,400 Direct labor $183,750 $210,000 Manufacturing overhead $1,009,000 $1,026,850 The best estimate of the total cost to manufacture 10,900 units is closest to: (Do not round intermediate calculations.) $1,923,660 $1,877,040 $1,853,730 $1,783,800

Please show calculations

Explanation / Answer

The costs of material and costs of labour are directly related to the level of units production. However, overheads are of semi variable nature. Semi variable overheads are segregated into variable and fixed overhead as follows:

Variable overhead per unit = Change in Overhead / Change in units

= ( 1026850 - 1009000) / ( 12000 - 10500) = 11.90

So, Fixed Overhead = Total Cost - Variable OH per unit * Units = 1026850 - 11.9 * 12000 = 884050

Direct material per unit = 647850 / 10500 = 61.70

Direct labour per unit = 183750 / 10500 = 17.50

Total variable overheads per unit = 61.70 + 17.50 + 11.90 = 91.10

Total variable overhead for 10900 unit = 91.10 * 10900 = 992990

Total COst = Variable cost + Fixed Cost = 992990 + 884050 = 1877040

Correct chocie: B

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