Ouelette 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: If 6,000 units are produced, the total amount of indirect manufacturing cost incurred is closest to:
A)$15,000
B)$22,800
C)$7,800
D)$25,800

Question

Ouelette 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:     If 6,000 units are produced, the total amount of indirect manufacturing cost incurred is closest to:
A)$15,000 
B)$22,800 
C)$7,800 
D)$25,800

Quizplus · Accepted Answer

Since the relevant range of activity is between 3,000 units and 7,000 units, we can assume that the company's costs will remain relatively constant within that range. Therefore, we can use the average cost per unit at 5,000 units to estimate the cost of producing 6,000 units.

Average cost per unit at 5,000 units = ($60,000 total indirect manufacturing cost + $200,000 direct manufacturing cost) / 5,000 units = $52 per unit

Total indirect manufacturing cost at 6,000 units = $52 per unit x 6,000 units = $312,000

Since the question asks for the closest amount, we can eliminate choices A and C as they are too low and too high, respectively. Therefore, the best choice is B, $22,800, which is closest to the calculated total indirect manufacturing cost of $312,000. 11efc28b_59cf_8751_80e6_c19c25ec88cb_TB2627_00   *The average fixed manufacturing overhead cost per unit was determined by dividing the total fixed manufacturing overhead cost by 5,000 units.

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