Required information The Foundational 15 [LO1-1, LO1-2, LO1-3, LO1-4, LO1-5, LO1
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Required information The Foundational 15 [LO1-1, LO1-2, LO1-3, LO1-4, LO1-5, LO1-6] [The following information applies to the questions displayed below.] Martinez Company's relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense Average Cost Per Unit $6.60 $4.10 $1.50 $4.00 $3.60 $2.00 $1.00 $0.50 Foundational 1-15Explanation / Answer
Fixed Costs are those which are incurred irrespective of level of production. Therefore, they remain same in totality at every level of production(e g Manufacturing=$4×10000units=$40000) but differs on per unit basis.
Total amount of fixed manufacturing overhead costs at production of 8000 units & 12500 uNits = $4×10000units= $40000
Total manufacturing overhead costs = Variable Manufacturing Cost+ Fixed Manufacturing costs
At production of 8000 units=
Variable=$1.5×8000=$12000
Fixed= $40000
Total Manufacturing overhead costs at 8000units=$52000
Manufacturing overhead per unit=$52000/8000=$6.5per unit
At production of 12500 units
Variable=$1.5×12500=$18750
Fixed=$40000
Total Manufacturing overhead=$58750
Manufacturing overhead per unit=$58750/12500=$4.7 per unit
Contribution margin per unit= Selling price per unit- Variable Cost
Selling Price=$22.6
Variable Cost=
Direct Material=$6.6
Direct Labour=$4.10
Variable Mfr=$1.50
Variable Admn=$0.50
Sales Comm=$1.00
Total variable cost=$13.70
Thus, Contribution=$22.60-$13.70=$8.90/unit
Total direct manufacturing costs for 11000uNits
Material=$6.60
Labour=$4.10
Variable Mfr=$1.50
=$12.20×11000uNits=$134200
Total indirect manufacturing costs at 11000units=$40000
Incremental Mfr costs for producing 10001 units instead of 10000units= $6.60+$4.10+1.50
=$12.20
(Fixed costs dont depend on the level of production)
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