Question

Bakan 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 4,600 units 5,600 units Direct materials $ 94.70 per unit $ 94.70 per unit Direct labor $ 31.60 per unit $ 31.60 per unit Manufacturing overhead $ 78.80 per unit $ 70.80 per unit The best estimate of the total variable manufacturing cost per unit is:

Answer 1

NOTE:Variable cost per unit and total fixed costs do not change with change in units.

Total  Manufacturing overhead for 4600 units=4600*78.8=$362480

Total  Manufacturing overhead for 5600 units=(5600*70.8)=$396480

Hence for manufacturing overhead;Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

(396480-362480)/(5600-4600)=$34 per unit

Total fixed costs=396480-(34*5600)=$206080

Hence total variable manufacturing cost per unit=(94.7+31.6+34)

=$160.3 per unit.