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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 $ 0.5014. If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production? (Do not round intermediate calculations.)

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 0.5014. If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production? (Do not round intermediate calculations.)

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Solution

To calculate the total amounts of direct and indirect manufacturing costs for 11,000 units, we need to understand which costs are variable (change with the level of production) and which are fixed (do not change with the level of production).

Direct costs are those that can be directly attributed to the production of the goods. In this case, these are direct materials, direct labor, and variable manufacturing overhead.

Indirect costs are those that cannot be directly attributed to the production of the goods. In this case, these are fixed manufacturing overhead.

First, let's calculate the direct costs:

  • Direct materials: 6.00perunitx11,000units=6.00 per unit x 11,000 units = 66,000
  • Direct labor: 3.50perunitx11,000units=3.50 per unit x 11,000 units = 38,500
  • Variable manufacturing overhead: 1.50perunitx11,000units=1.50 per unit x 11,000 units = 16,500

So, the total direct costs are 66,000+66,000 + 38,500 + 16,500=16,500 = 121,000

Next, let's calculate the indirect costs:

  • Fixed manufacturing overhead is a fixed cost, so it does not change with the level of production. It remains at 4.00perunitforanylevelofproductionwithintherelevantrange.So,for11,000units,thetotalfixedmanufacturingoverheadis4.00 per unit for any level of production within the relevant range. So, for 11,000 units, the total fixed manufacturing overhead is 4.00 per unit x 11,000 units = $44,000

So, the total direct and indirect manufacturing costs incurred to support a level of production of 11,000 units are 121,000(directcosts)+121,000 (direct costs) + 44,000 (indirect costs) = $165,000.

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