Question

Rhome Corporation's relevant range of activity is 2,000 units to 6,000 units. When it produces and sells 4,000 units, its average costs per unit are as follows:
Average Cost per Unit
Direct materials $ 5.40
Direct labor $ 3.55
Variable manufacturing overhead $ 1.70
Fixed manufacturing overhead $ 3.00
Fixed selling expense $ 0.60
Fixed administrative expense $ 0.40
Sales commissions $ 1.00
Variable administrative expense $ 0.40
If 5,000 units are produced, the total amount of fixed manufacturing cost incurred is closest to:
A. $18,000
B. $12,000
C. $13,500
D. $15,000

Answer 1

Answer:

B. $12,000

Explanation:

The computation of the fixed manufacturing cost is shown below:

= Number of units × Fixed manufacturing overhead per unit

= 4,000 units × $3

= $12,000

The fixed manufacturing cost for the 5,000 units would remain the same as fixed costs do not change with the production level, it remains fixed.  

The remaining item is not relevant. Hence, it is ignored.