Question

Munchak Company’s relevant range of production is 9,000 to 11,000. Last month the company produced 10,000 units. Its total manufacturing cost per unit produced was $70.00. At this level of activity the company variable manufacturing cost is 40% of its total manufacturing cot.
Required:
Assume that next month munchak produces 10,050units and that its cost behavior pattern remains unchanged. Label each of the following statement as “True” or False” with respect to the next month.
1. The variable manufacturing cost per unit will remain the same as last month.
2. The total fixed manufacturing cost will be greater than last month
3. The total manufacturing cost will be greater last month
4. The average fixed manufacturing cost per unit will be less than last month
5. The total variable manufacturing cost will be less than last month
6. The total manufacturing cost per unit will be greater than last month
7. The variable manufacturing cost per unit will equal $28.00
8. The total fixed manufacturing cost will equal $422,100.00
9. The total manufacturing cost will equal $ 701,400
10. The average fixed manufacturing cost per unit (round up to nearest cent) will equal $41.9
11. The total variable manufacturing cost will equal $280,000
12. The total manufacturing cost per unit (round up to nearest cent) will equal $69.79

Answer 1

Answer:

1. True, 2. True, 3. True, 4. False, 5. False, 6. True, 7. True, 8. True, 9. False, 10.  False, 11. False, 12. False

Explanation:

1. The variable manufacturing cost will remain same as cost behavior patterns remain unchanged.

2. Total fixed cost increases as level of production increases.

10000 units:                                                           10050 units

Variable cost= (70x10000) x40%=$280000       (70x10050)x40%=$281400  

Fixed Cost-= 700000-280000= $420000          703500-281400=$422100

3. Increase in level of production will cause the total manufacturing cost to increase.

4. At 10000 units, $\frac{420000}{10000}$ = 42/unit

   10050 units, $\frac{422100}{10050}$ = $42/unit

5. The total variable manufacturing cost will be greater than last month

  At 10000 = (70x10000) x 40% = $280000

  At 10050 = (70x10050) x 40% = $281400

6. At 10000 = 70 x 10000 = $700000

   At 10050 = 70 x 10050= $703500

7. Cost behavior remain unchanged

   70 x 40% = $28

8. Total manufacturing cost = total manufacturing variable + total                           manufacturing fixed cost

  703500 = 281400 - Fixed cost

  Fixed cost = $ 422100

9. Total manufacturing cost = 70 x 10050 = $703500

10. $\frac{422100}{10050}$ = $42/ unit

11. Increase in level of production will increase total manufacturing variable cost

(70x10000) x 40% = 280000

(70x10050) x 40% = 2814000

12. Cost behavior pattern unchanged

$\frac{703500}{10050}$ = $70