Question

The following production and average cost data for two levels of monthly production volume have been supplied by a company that produces a single product:

Production volume		1,000	units			3,000	units
Direct materials	$	13.20	per unit		$	13.20	per unit
Direct labor	$	14.50	per unit		$	14.50	per unit
Manufacturing overhead	$	65.40	per unit		$	29.40	per unit

The best estimate of the total variable manufacturing cost per unit is:

Multiple Choice

• $39.10

• $27.70

• $11.40

• $13.20

Answer 1

Overhead cost for 1000 units = (1000*65.40) = 65,400

Overhead cost for 3000 units = (3000*29.40) = 88,200

Variable Manufacturing Overhead = Change in cost/Change in output

= (88,200-65,400)/(3000-1000)

= 11.40 per unit

Total Variable Manufacturing cost = Direct Materials + Direct Labor + Vmoh

= 13.20+14.50+11.40

= 39.10