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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 $ 0.5011. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? (Round your "per unit" answer to 2 decimal places.)

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 0.5011. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? (Round your "per unit" answer to 2 decimal places.)

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Solution

To calculate the total amount of manufacturing overhead cost for 8,000 units, we need to consider both variable and fixed manufacturing overhead costs.

  1. Variable Manufacturing Overhead Cost: This cost changes in direct proportion to the level of production. Given that the variable manufacturing overhead cost per unit is 1.50,for8,000units,thetotalvariablemanufacturingoverheadcostwouldbe1.508,000=1.50, for 8,000 units, the total variable manufacturing overhead cost would be 1.50 * 8,000 = 12,000.

  2. Fixed Manufacturing Overhead Cost: This cost does not change with the level of production within the relevant range. Therefore, the total fixed manufacturing overhead cost would be the same as the cost for 10,000 units, which is 4.00perunit.So,for8,000units,thetotalfixedmanufacturingoverheadcostwouldbe4.008,000=4.00 per unit. So, for 8,000 units, the total fixed manufacturing overhead cost would be 4.00 * 8,000 = 32,000.

Adding these two costs together, the total manufacturing overhead cost for 8,000 units would be 12,000(variable)+12,000 (variable) + 32,000 (fixed) = $44,000.

To express this total amount on a per unit basis, we divide the total cost by the number of units. So, 44,000/8,000units=44,000 / 8,000 units = 5.50 per unit (rounded to 2 decimal places).

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