Question

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

Production volume		5,300	units		6,300	units
Direct materials	$	96.70	per unit	$	96.70	per unit
Direct labor	$	24.60	per unit	$	24.60	per unit
Manufacturing overhead	$	78.20	per unit	$	71.20	per unit

The best estimate of the total variable manufacturing cost per unit is:

Multiple Choice

• $167.90

• $155.40

• $177.40

• $121.30

Answer 1

Manufacturing overhead per unit at 5,300 units = $78.20

Total manufacturing overhead at 5,300 units = 5,300 x 78.20

= $414,460

Manufacturing overhead per unit at 6,300 units = $71.20

Total manufacturing overhead at 6,300 units = 6,300 x 71.20

= $448,560

Variable manufacturing overhead per unit = Change in manufacturing overhead cost/ Change in output

= (448,560-414,460)/(6,300-5,300)

= 34,100/1,000

= $34.10

Total variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead

= 96.70+24.60+34.10

= $155.40

Second option is correct.