Question

Landmann Corporation's relevant range of activity is 7,000 units to 11,000 units. When it produces and sells 9,000 units, its average costs per unit are as follows:

	Average Cost per Unit
Direct materials	$	6.35
Direct labor	$	4.10
Variable manufacturing overhead	$	1.35
Fixed manufacturing overhead	$	13.50
Fixed selling expense	$	2.25
Fixed administrative expense	$	1.80
Sales commissions	$	1.00
Variable administrative expense	$	0.45

For financial reporting purposes, the total amount of product costs incurred to make 9,000 units is closest to:

Multiple Choice

$121,500

$227,700

$236,700

$106,200

Answer 1

The total amount of product costs incurred to make a product is equal to sum total of all the costs associated to the manufacturing of the product, whether fixed or variable

Since the question has asked about the cost INCURRED IN MAKING 9000 units,

Selling and Administrative Expenses will not be included in the cost since they do not relate to manufacturing of product

Hence, Relevant Cost per unit = 6.35+4.10+1.35+13.50+ = 25.3

And the total amount of product costs incurred to make 9,000 units = 25.3*9000 = 227,700