Question

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?

Answer 1

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 .