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23 February, 07:46

Chief Manufacturing currently produces 8,000 necklaces per month. Chief's relevant range of production is 7,500 to 11,000 necklaces. The following per unit data apply for sales to regular customers: Direct materials $10 per unit Direct labor $15 per unit Variable manufacturing overhead $7 per unit Fixed manufacturing overhead $8.50 per unit Sales commissions $3.25 per unit Fixed administrative costs $3 per unit The plant has the capacity to make 11,000 necklaces and is currently considering expanding production to 10,000 necklaces. What would be the total cost of producing 10,000 necklaces?

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  1. 23 February, 10:36
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    Total cost 127,250

    Explanation:

    Variable cost

    DM 10

    DL 15

    VMO 7

    Sales commissions 3.25

    Unit variable cost 35.25

    x 10,000 necklaces $35,250

    Unit Fixed cost (at 8,000 necklaces)

    fixed MO 8.5 x 8,000 = 68,000

    fixed S&A 3 x 8,000 = 24,000

    Total fixed cost 92,000

    10,000 is within the relevant range, so it won't require additional fixed cost.

    Total cost 127,250

    Variable + fixed

    35,250 + 92,000
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