(Appendix 5A) Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

-The best estimate of the total cost to manufacture 5,300 units is closest to:
A) $1,116,180
B) $1,062,915
C) $1,080,000
D) $1,009,650

Question

(Appendix 5A) Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.
 
-The best estimate of the total cost to manufacture 5,300 units is closest to:
A) $1,116,180 
B) $1,062,915 
C) $1,080,000 
D) $1,009,650

Quizplus · Accepted Answer

Note: There are several ways to computer the variable cost per unit for direct materials and direct labor.
Direct materials:
Variable cost per unit = Change in cost ÷ Change in activity
= ($124,200 - $103,500) ÷ (6,000 units - 5,000 units)
= $20,700 ÷ 1,000 units
= $20.70 per unit
Direct labor:
Variable cost per unit = Change in cost ÷ Change in activity
= ($339,000 - $282,500) ÷ (6,000 units - 5,000 units)
= $56,500 ÷ 1,000 units
= $56.50 per unit
Manufacturing overhead
Variable cost per unit = Change in cost ÷ Change in activity
= ($679,800- $667,000) ÷ (6,000 units - 5,000 units)
= $12,800 ÷ 1,000 units
= $12.80 per unit
Total variable cost per unit = $20.70 per unit + $56.50 per unit + $12.80 per unit
= $90.00 per unit
Fixed cost = Total cost - Variable cost element
= $679,800 - ($12.80 per unit × 6,000 units)
= $679,800 - $76,800
= $603,000
Total fixed cost per month = $0 + $603,000 = $603,000
Total cost = Total fixed cost + Total variable cost
= $603,000 + ($90.00 per units × 5,300 units)
= $603,000 + $477,000
= $1,080,000

(Appendix 5A) Babuca Corporation Has Provided the Following Production and Total