Martinez Companys relevant range of production is 7500 units

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:

0.45

1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units?

2. For financial accounting purposes, what is the total amount of period costs incurred to sell 10,000 units?

3. If 8,000 units are produced and sold, what is the variable cost per unit produced and sold?

4.If 12,500 units are produced and sold, what is the variable cost per unit produced and sold?

5. If 8,000 units are produced and sold, what is the total amount of variable costs related to the units produced and sold?

6. If 12,500 units are produced and sold, what is the total amount of variable costs related to the units produced and sold?

7. If 8,000 units are produced, what is the average fixed manufacturing cost per unit produced?

8. If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced?

9. If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

11. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis?

12. If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis?

13. If the selling price is $21.60 per unit, what is the contribution margin per unit?

14. If 10,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production

15. What incremental manufacturing cost will Martinez incur if it increases production from 10,000 to 10,001 units?

	Average Cost Per Unit
Direct materials	$	5.60
Direct labor	$	3.10
Variable manufacturing overhead	$	1.40
Fixed manufacturing overhead	$	4.00
Fixed selling expense	$	2.60
Fixed administrative expense	$	2.20
Sales commissions	$	1.20
Variable administrative expense	$	0.45

Solution

1. Total amount of product cost to make 10,000 units $141,000 Direct material ($5.60 x 10,000) 56000 Direct labor ($3.10 x 10,000) 31000 Variable manufacturing overhead ($1.40 x 10,000) 14000 Fixed manufacturing overhead 40000 Total product cost 141000 2. Total period costs to sell 10,000 units $64,500 Sales commissions ($1.20 x 10,000) $12,000 Fixed selling expenses $26,000 Variabe administrative expenses ($0.45 x 10,000) $4,500 Fixed administrative expenses $22,000 Total period costs $64,500 3.If 8,000 units are produced and sold , variable cost per unit $11.75 Direct material $5.60 Direct labor $3.10 Variable manufacturing overhead $1.40 Sales commission $1.20 Variable administrative expenses $0.45 Total variable costs to produce and sell $11.75 4.If 12,500 units are produced and sold , variable cost per unit $11.75 5. Total amount of variable costs for 8,000 units produced and sold 8000 x $11.75 $94,000 6. Total amount of variable costs for 12,500 units produced and sold 12500 x $11.75 146875 7. Average fixed manufacturing cost per unit , if 8,000 units are produced $40,000 / 8,000 $5.00 8. Average fixed manufacturing cost per unit , if 12,500 units are produced $40,000 / 12,500 $3.20 9. Fixed manufacturing costs incurred to support the production of 8,000 units $40,000 10. Fixed manufacturing costs incurred to support the production of 12,500 units $40,000 11. Total amount of manufacturing overhead cost incurred for produccing 8,000 units $51,200 Amount of manufacturing overhead cost incurred per unit for produccing 8,000 units $6.40 Variable manufacturing ovrhead cost for 8,000 units ($1.40 x 8,000) $11,200 Fixed manufacturing overhead cost $40,000 Total manufacturing overhead cost for 8,000 units $51,200 Per unit total manufacturing cost for 8,000 units $6.40 12. Total amount of manufacturing overhead cost incurred for produccing 12,500 units $57,500 Amount of manufacturing overhead cost incurred per unit for produccing 12,500 units $7.19 Variable manufacturing ovrhead cost for 12,500 units ($1.40 x 12,500) $17,500 Fixed manufacturing overhead cost $40,000 Total manufacturing overhead cost for 12,500 units $57,500 Per unit total manufacturing cost for 12,500 units $7.19 13. Contribution margin , if the selling price is $21.60 $9.85       ($21.60 - variable cost per unit from point number 3 above) 14.Total amount of direct and indirect manufacturing costs to support 10,000 units produced $141,000 Direct material ($5.60 x 10,000) 56000 Direct labor ($3.10 x 10,000) 31000 Variable manufacturing overhead ($1.40 x 10,000) 14000 Fixed manufacturing overhead 40000 Total amount of direct and indirect manufacturing costs to support 10,000 units produced 141000 15. Incremental manufacturing costs incurred to increase production from 10,000 to 10,001 units $10.10 Direct material $5.60 Direct labor $3.10 Variable manufacturing overhead $1.40 Incremental manufacturing costs incurred to increase production from 10,000 to 10,001 units $10.10 Working: Within a relevant range of production and sales, the variable cost per unit is constant and the total fixed cost is constant. Therefore we shall first find out the total cost at the level of 10,000 units. Per unit Total Production and sale 10000 Direct material 5.60 56000 Direct labor 3.10 31000 Variable manufacturing overhead 1.40 14000 Fixed manufacturing ovrhead 4.00 40000 Fixed selling expense 2.60 26000 Fixed administrative expense 2.20 22000 Sales commission 1.20 12000 Variable administrative expense 0.45 4500 Since the relevant range of production and sale is 7,500 to 12,500 the variable cost per unit and the total fixed cost remain the same within this range for any level of activity. Product costs are the costs incurred to manufacture. This is the total of direct material, direct labor and manufacturing overhead. Period costs are the selling and administrative expenses.