Perteet Corporations relevant range of activity is 8100 unit

Perteet Corporation\'s relevant range of activity is 8,100 units to 15,500 units. When it produces and sells 11,800 units, its average costs per unit are as 4 Direct materials Direct labor Variable manufacturing overheacd Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales comaisaions Variable administrative expense Unit $7.80 3.95 $1.70 $3.40 0.65 0.35 0.45 $0.50 If 8,500 units are produced, the total amount of manufacturing overhead cost is closest to:

Solution

Solution:

The Correct option is $54,570

The problem is related to manufacturing overhead cost not the Manufacturing Cost.

Total Manufacturing Overhead Cost includes Variable Manufacturing Overhead and Fixed Manufacturing Overhead whereas Total Manufacturing Cost includes cost of direct materials, direct labors, variable manufacturing overhead and fixed manufacturing overhead.

Since we need to identify total manufacturing overhead cost we will consider only variable manufacturing overhead and fixed manufacturing overhead.

Variable Manufacturing Overhead Costs

- It can be traced directly with production volume.

- Variable Cost/expenses are the cost which varies in totality with the volume of production.

- Per Unit Variable Cost will remain same irrespective of volume of production.

Fixed Manufacturing Overhead

- Generally fixed expenses are incurred for a period.

- In totality, fixed expenses will remain same.

- Per Unit Fixed Expenses are changed as the volume increases or decreases.

- In case of increase in volume, the fixed expenses per unit decreases.

- In case of decrease in volume, fixed expenses per unit increased.

Variable Manufacturing Overhead cost is vary with the production volume and can be calculated easily by multiplying Production Volume and Per Unit Variable Manufacturing Overhead Cost.

Variable Manufacturing Overhead = 8,500 Units x $1.70 Per Unit = $14,450

We are required to understand the fixed manufacturing overhead here, since at the activity level 11,800 units the fixed manufacturing overheads was $40,120 (11,800 Units x $3.40) and the fixed expenses will remain same in totality. Hence at the activity level 8,500 Units the Fixed Manufacturing Overheads will remain same as $40,120.

So, the total manufacturing overhead costs = Total Variable Manufacturing Overhead $14,450 + Total Fixed Manufacturing Overhead $40,120 = $54,570

The Correct option is $54,570

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