Question

Required information

Foundational [LO 2-1, LO 2-2, LO 2-3, LO 2-4, LO 2-6, LO 2-7]

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Martinez Company’s relevant range of production is 8,500 units to 13,500 units. When it produces and sells 11,000 units, its unit costs are as follows:

	Amount Per Unit
Direct materials	$	6.10
Direct labor	$	3.60
Variable manufacturing overhead	$	1.40
Fixed manufacturing overhead	$	4.10
Fixed selling expense	$	3.10
Fixed administrative expense	$	2.10
Sales commissions	$	1.10
Variable administrative expense	$	0.55

Foundational 2-4

4.	If 13,000 units are sold, what is the variable cost per unit sold? (Round your answer to 2 decimal places.)

   
      

Answer 1

Ans.=

Variable Cost = Cost that varies with the Output

Fixed Cost = Cost that remains fixed irrespective of the level of Output

Hence,

Variable Cost does not include fixed costs and hence, all fixed costs incurred have been ignored in the calculation of variable cost per unit. Also, as sales commission is based on the number of units sold, so, it is a variable cost and therefore added in the variable cost of the product.

Variable Cost	Per Unit	Total*
Direct Material	6.10	79,300
Direct Labour	3.60	46,800
Variable Manufacturing Overhead	1.40	18,200
Sales Commission	1.10	14,300
Variable Administrative Expense	0.55	7,150
Total	12.75	165,750

*Total = Per Unit Cost * No.of units sold, i.e., 13,000

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