The Cycle Centre currently produces 1000 bicycles per month.The following per unit data apply for sales to regular customers:
$\begin{array}{lr}
\text { Direct materials } & \$ 50 \
\text { Direct manufacturing labour } & 5 \
\text { Variable manufacturing overhead } & 14 \
\text { Fixed manufacturing overhead } & \underline{10} \
{\text { Total manufacturing costs }} & \$ 79
\end{array}$
The plant has capacity for 3000 bicycles and is considering expanding production to 2000 bicycles.What is the per unit cost of producing 2000 bicycles?
A)$134 per unit
B)$158 per unit
C)$74 per unit
D)$79 per unit

Question

Quizplus · Accepted Answer

When production increases to 2000 bicycles, the fixed manufacturing overhead cost per unit decreases because it is spread over more units. The variable costs remain the same. Therefore, the per unit cost is: Direct materials ($50) + Direct manufacturing labour ($5) + Variable manufacturing overhead ($14) + (Fixed manufacturing overhead $10 * 1000/2000) = $74.

The Cycle Centre Currently Produces 1000 Bicycles Per Month The Plant Has Capacity for 3000 Bicycles and Is Considering