Required information The Foundational 15 LO11 LO12 LO13 LO14

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 1-15

Solution

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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