Question

Cardiv Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product.

  

Production volume	6,400	units	7,400	units
Direct materials	$76.90	per unit	$76.90	per unit
Direct labor	$53.20	per unit	$53.20	per unit
Manufacturing overhead	$79.30	per unit	$72.30	per unit

  

The best estimate of the total cost to manufacture 6,900 units is closest to: (Do not round intermediate calculations.)

$1,436,840

$1,425,665

$1,387,670

$1,418,960

Answer 1

Variable cost per unit and Total fixed costs do not change with change in units.

Hence direct material and direct labor are variable costs.

Manufacturing overhead is a mixed cost .

Hence for Manufacturing overhead:

Total cost at 7400 units=(7400*72.30)=$535020

Total cost at 6400 units=(6400*79.30)=$507520

Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

=(535020-507520)/(7400-6400)=$27.50

Hence Fixed cost=535020-(27.5*7400)=$331520

Hence total cost to manufacture 6,900 units=Direct material+Direct labor+manufacturing overhead

=(76.9*6900)+(53.2*6900)+(27.5*6900)+331520

WHICH IS EQUAL TO

=$1418960.