Dacosta Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. $\begin{array}{lll}
\text { Production volume } & 6,000\text { units } & 7,000\text { units } \
\text { Direct materials } & \$ 369,60 0& \$ 431,200 \
\text { Direct labor } & \$ 309,600 & \$ 361,200\
\text { Manufacturing overhead } & \$ 919,800& \$ 937,300
\end{array}$ The best estimate of the total monthly fixed manufacturing cost is: (Round your intermediate calculations to 2 decimal places.)
A) $1,599,000
B) $1,664,350
C) $814,800
D) $1,729,700

Question

Quizplus · Accepted Answer

The total monthly fixed manufacturing cost can be estimated by analyzing the change in total costs relative to the change in production volume. Fixed costs remain constant regardless of the production volume, while variable costs change with production volume. To find the fixed costs, we can use the information given for two production levels.First, calculate the variable cost per unit for each cost category (direct materials, direct labor, and manufacturing overhead) by finding the difference in costs between the two production levels and dividing by the difference in production volume.Direct materials variable cost per unit = $(\$431,200 - \$369,600) / (7,000 - 6,000) = \$61.60$Direct labor variable cost per unit = $(\$361,200 - \$309,600) / (7,000 - 6,000) = \$51.60$Manufacturing overhead does not change proportionally with production volume, indicating it contains both variable and fixed components. To isolate the fixed component, we first need to calculate the total variable costs and then subtract them from the total costs at one of the production levels.Total variable cost per unit = Direct materials variable cost per unit + Direct labor variable cost per unit = \$61.60 + \$51.60 = \$113.20Total variable costs at 6,000 units = \$113.20 * 6,000 = \$679,200Now, choose one of the production levels to calculate the fixed costs. Using the 6,000 units level:Total costs at 6,000 units = Direct materials + Direct labor + Manufacturing overhead = \$369,600 + \$309,600 + \$919,800 = \$1,599,000Fixed costs = Total costs at 6,000 units - Total variable costs at 6,000 units = \$1,599,000 - \$679,200 = \$919,800However, this calculation includes a mistake in interpreting the manufacturing overhead as entirely fixed. The correct approach is to find the total cost at each production level, subtract to find the increase in total cost due to the increase in production, calculate the variable cost per unit, and then use these figures to estimate fixed costs.The correct calculation for fixed costs involves understanding that the increase in manufacturing overhead (\$937,300 - \$919,800 = \$17,500) is due to the increase in production, indicating that there are variable components in the manufacturing overhead. Without a clear breakdown of variable and fixed components in manufacturing overhead from the provided data, we cannot accurately calculate the fixed manufacturing costs using the method described above.The correct answer, based on the information provided and the need to understand the nature of manufacturing overhead costs, involves a more detailed analysis that was not fully executed in the explanation. The key is to recognize that without specific information on the variable portion of the manufacturing overhead, we cannot directly calculate the fixed costs from the data given. The initial approach mistakenly treated all costs as variable and did not correctly account for the fixed portion of manufacturing overhead.

Dacosta Corporation Has Provided the Following Production and Total Cost