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Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows:   Average Cost per UnitDirect materials $ 6.00Direct labor $ 3.50Variable manufacturing overhead $ 1.50Fixed manufacturing overhead $ 4.00Fixed selling expense $ 3.00Fixed administrative expense $ 2.00Sales commissions $ 1.00Variable administrative expense $ 0.509. If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Question

Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows:   Average Cost per UnitDirect materials 6.00Directlabor 6.00Direct labor 3.50Variable manufacturing overhead 1.50Fixedmanufacturingoverhead 1.50Fixed manufacturing overhead 4.00Fixed selling expense 3.00Fixedadministrativeexpense 3.00Fixed administrative expense 2.00Sales commissions 1.00Variableadministrativeexpense 1.00Variable administrative expense 0.509. If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

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Solution

The total amount of fixed manufacturing cost incurred to support a production level of 8,000 units can be calculated as follows:

First, we need to understand that fixed costs do not change with the level of production. They remain the same whether the company produces one unit or thousands of units. In this case, the fixed manufacturing overhead is given as $4.00 per unit.

However, this cost is calculated based on the production of 10,000 units. So, to find the total fixed manufacturing cost, we multiply the fixed manufacturing overhead per unit by the number of units produced:

Fixed manufacturing overhead per unit = $4.00 Number of units produced = 10,000 units

Total fixed manufacturing cost = Fixed manufacturing overhead per unit x Number of units produced Total fixed manufacturing cost = 4.00x10,000Totalfixedmanufacturingcost=4.00 x 10,000 Total fixed manufacturing cost = 40,000

Therefore, the total amount of fixed manufacturing cost incurred to support a production level of 8,000 units is $40,000. This amount remains the same regardless of the number of units produced within the relevant range of production (7,500 units to 12,500 units).

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