Question

Kubin Company's relevant range of production is 20,000 to 23,000 units. When it produces and sells 21,500 units,its average costs per unit are as follows:
Direct materials $8.00 per unit
Direct labor $5.00 per unit
Variable manufacturing overhead $2.50 per unit
Fixed manufacturing overhead $6.00 per unit
Fixed selling expense $4.00 per unit
Fixed administrative expense $3.50 per unit
Sales commissions $2.00 per unit

Required:

a. What is the incremental manufacturing cost incurred if the company increases production from 21,500 to 21,501 units?
b. What is the incremental cost incurred if the company increases production and sales from 21,500 to 21,501 units?
c. Assume that Kubin Company produced 21.500 units and expects to sell 21,200 of them. If a new customer unexpectedly emerges and expresses interest in buying the 300 extra units that have been produced by the company and that would otherwise remain unsold, what is the Incremental manufacturing cost per unit incurred to sell these units to the customer?
d. Assume that Kubin Company produced 21,500 units and expects to sell 21,200 of them. If a new customer unexpectedly emerges and expresses interest in buying the 300 extra units that have been produced by the company and that would otherwise remain unsold, what incremental selling and administrative cost per unit is incurred to sell these units to the customer?

Answer 1

Answer:

a.Incremental manufacturing cost is $15.50

b.incremental cost incurred if the company increases production and sales is  $17.50

c.Incremental manufacturing cost is $4,650

d.incremental selling and administrative is $600

Explanation:

a.Incremental manufacturing cost

Fixed manufacturing overheads are irrelevant

Direct materials                               $8.00

Direct labor                                      $5.00

Variable manufacturing overhead $2.50

Total                                                $15.50

b.incremental cost incurred if the company increases production and sales

Incremental Manufacturing Costs   $15.50

Add Sales Commission                     $2.00

Total                                                   $17.50

c.Incremental manufacturing cost

Fixed manufacturing costs are irrelevant for this decision

Direct Materials (300×$8.00)                                       $2,400

Direct Labor (300×$5.00)                                              $1,500

Variable Manufacturing Overhead (300×$2.50)           $ 750

Total                                                                               $4,650

d.incremental selling and administrative

Fixed Selling and Administrative costs are irrelevant for this decision

Sales Commission (300×$2.00)    $600