Fiori Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows: The incremental manufacturing cost that the company will incur if it increases production from 5,000 to 5,001 units is closest to:
A) $16.20
B) $10.80
C) $13.80
D) $14.30

Question

Fiori Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows:  The incremental manufacturing cost that the company will incur if it increases production from 5,000 to 5,001 units is closest to:
A) $16.20 
B) $10.80 
C) $13.80 
D) $14.30

Quizplus · Accepted Answer

The incremental manufacturing cost is the variable cost per unit ($44.00) since fixed costs remain constant within the relevant range. Therefore, the incremental manufacturing cost for producing one additional unit is $44.00. To calculate this cost per unit, we need to take the difference between the cost of producing 5,000 units and the cost of producing 5,001 units, which is:

Cost of producing 5,000 units = $214,000
Cost of producing 5,001 units = $214,044
Incremental manufacturing cost = ($214,044 - $214,000) / 1 unit = $44.00 per unit

Therefore, the incremental manufacturing cost for producing one additional unit is $44.00 or $10.80 rounded to the nearest whole dollar.

Fiori Corporation's Relevant Range of Activity Is 3,000 Units to 7,000