Farac 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 4,300 units is closest to:

Question

Farac 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 4,300 units is closest to:

Quizplus · Accepted Answer

Direct materials is a variable cost, so it can be computed as follows:
Direct materials cost per unit = $208,800/4,000 units = $52.20 per unit
Direct labor could also be computed the same way, but just to make sure it is purely a variable cost, we'll use the high-low method:
Variable direct labor cost per unit = Change in cost ÷ Change in activity
= ($149,000 - $119,200)÷ (5,000 units - 4,000 units)
= $29,800 ÷ 1,000 units
= $29.80 per unit
Direct labor fixed cost element = Total cost - Variable cost element
= $149,000 - ($29.80 per unit × 5,000 units)
= $149,000 - $149,000 = $0
Variable manufacturing overhead cost per unit = Change in cost ÷ Change in activity
= ($329,500 - $319,200)÷ (5,000 units - 4,000 units)
= $10,300 ÷ 1,000 units
= $10.30 per unit
Manufacturing overhead fixed cost element = Total cost - Variable cost element
= $329,500 - ($10.30 per unit × 5,000 units)
= $329,500 - $51,500 = $278,000
Total variable cost = Direct materials + Direct labor + Variable manufacturing overhead
= $52.20 per unit + $29.80 per unit + $10.30 per unit
= $92.30 per unit
Total fixed overhead cost = $278,000
Total cost to manufacture 4,300 units = Total fixed cost + Total variable cost
= $278,000 + ($92.30 per unit × 4,300 units)
= $278,000 + $396,890
= $674,890

Farac Corporation Has Provided the Following Production and Total Cost