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14 October, 04:29

Prairie, Inc. produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each unit is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit?

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  1. 14 October, 05:00
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    Variable cost = $42

    Explanation:

    Giving the following information:

    Each unit is sold for $50

    Direct material worth $30

    Direct labor worth $5.

    Manufacturing overhead cost is $10 per unit of which 70% is variable.

    The incremental cost is the variable cost (there is available capacity)

    Variable cost = direct material + direct labor + variable manufacturing overhead = 30 + 5 + (10*0.7) = $42
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