Question

rhome corporations relevant range of activity is 2,000 units to 6,000 units. when it produces and sells 4,000 units, its average costs per unit are as follows:

average cost per unit:
direct materials: $5.40
direct labor: $3.55
variable manufacturing overhead: $1.70
fixed manufacturing overhead: $3.00
fixed selling expense: $0.60
fixed administrative expense: $0.40
sales commissions: $1.00
variable administrative expense: $0.40

if 5,000 units are produced, the total amount of fixed manufacturing cost incurred is closest to:

multiple choice

• $18,000
• $12,000
• $15,000
• $13,500

Explanation:

Identify the fixed manufacturing cost per unit

Using the Average Fixed Cost knowledge point

$$ \text{Average Fixed Manufacturing Overhead per unit} = \$3.00 \quad (\text{at } 4,000 \text{ units}) $$

Calculate total fixed manufacturing cost at base level

Using the Fixed Cost Behavior knowledge point

$$
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$$

Determine total fixed manufacturing cost at target level

Using the Fixed Cost Behavior knowledge point

$$
LATEXBLOCK1
$$

Answer:

• $18,000
• $12,000 (Correct answer)
• $15,000
• $13,500