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Martinez Company’s relevant range of production is 7, 500 units to 12, 500 units. When it produces and soils 10, 000 units, its unit costs are as follows: If 12, 500 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?
Expert Answer
Fixed manufacturing overheads at 10000 units=(10000*$4)=$40000
Hence total manufacturing overhead costs at 12500 units=(12500*1.5)+$40000
=$58750.
Cost/unit=($58750/12500)
=$4.7/unit.
[note:Total fixed costs and VC/unit remain the same irrespective of change in units].
