Question

# Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and...

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:

 Average Cost per Unit Direct materials \$ 6.10 Direct labor \$ 3.60 Variable manufacturing overhead \$ 1.40 Fixed manufacturing overhead \$ 4.00 Fixed selling expense \$ 3.10 Fixed administrative expense \$ 2.10 Sales commissions \$ 1.10 Variable administrative expense \$ 0.55

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

Fixed Manufacturing overhead for 10,000 units is given as \$4 per unit . Therefore total fixed manufacturing cost will be (10,000 * 4) = \$40,000.

From the definition of fixed cost we know that the total amount of fixed cost remains same for all level of output , it changes for per units produced . So , the total amount of fixed cost will remain \$40,000.

Now, for 12,500 units of production , the average fixed manufacturing cost per unit will be = Total fixed cost / Units produced ,that is

\$40,000 / 12,500 = \$3.2

So , for 12,500 units , the average fixed manufacturing cost per unit will be \$3.2 .

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