Caraco Corporation has provided the following production and average cost data for two levels of monthly production volume.The company produces a single product. The best estimate of the total cost to manufacture 7,300 units is closest to:

Question

Caraco Corporation has provided the following production and average cost data for two levels of monthly production volume.The company produces a single product.  The best estimate of the total cost to manufacture 7,300 units is closest to:

Quizplus · Accepted Answer

Total manufacturing overhead at 8,000 units = 8,000 units × $90.80 per unit = $726,400
Total manufacturing overhead at 7,000 units = 7,000 units × $101.50 per unit = $710,500
Variable manufacturing overhead per unit = Change in cost ÷ Change in activity
= ($726,400 - $710,500)÷ (8,000 units - 7,000 units)
= $15,900 ÷ 1,000 units
= $15.90 per unit
Fixed cost element of manufacturing overhead = Total cost - Variable cost element
= $726,400 - (8,000 units × $15.90 per unit)
= $726,400 - $127,200
= $599,200
Total variable manufacturing cost = Direct materials + Direct labor + Manufacturing overhead
= ($87.40 per unit + $20.20 per unit)+ $15.90 per unit
= $123.50 per unit
Total manufacturing cost = (Total variable manufacturing cost per unit × Total units manufactured)+ Total fixed manufacturing cost
= ($123.50 per unit × 7,300 units)+ $599,200
= $901,550+ $599,200
= $1,500,700

Caraco Corporation Has Provided the Following Production and Average Cost