The following production and average cost data for two level

The following production and average cost data for two levels of monthly production volume have been supplied by a company thot Production volume. Direct materials 1,000 units Direct labor Manufacturing overhead. The best estimate of the total monthly fixed manufecturing cost is 3,000 units $13.20 per unit $13.20 per unit $14.50 per unit $14.50 per unit $65.40 per unit $29.40 per unit O $54.000 O $65.400 O $93,100 O $88.200

Solution

Solution :

The manufacturing Overehead consist of both variable and fixed costs.

The variable cost per unit varies directly with the prodcution volume while toal fixed cost remains the same for a given level of production.

Let us assume variable cost per unit as x and total fixed cost as y.

3000x + y = 88200

1000x + y = 65400

Solving the above simultaneously , subracting both the sides

we get. 2000 x= 22,800

hence x = 11.4

Replacing x in any of the equations , we get total fixed cost (y) as $ 54,000 .

Below summary by table :

Production Volume		1000		3000
Total Direct Materials Cost		13200		39600
(13.2 per unit)
Total Direct Labour Cost		14500		43500
(14.5 per unit)
Manufacturing Overhead		65400		88200
( as per given rates in the question)
Variable * 11.4		11400		34200
Fixed		54000		54000
Total Cost		93100		171300