Question

Cincinnati Manufacturing uses machine hours to budget production quality costs. When the company incurs 7,200 machine hours total variable production quality cost is $556,416 and its total fixed production quality cost is $226,008. If the company incurred 7,300 machine-hours in a month, what would be the production quality costs per unit (both fixed and variable)

Answer 1

Answer: $108.24 per machine hour

Explanation:

Given that,

If the company incurs 7,200 machine hours then,

Total variable production quality cost = $556,416

Total fixed production quality cost = $226,008

Variable production quality cost per machine hour:

= $\frac{Total\ variable\ production\ quality\ cost}{Machine\ hours}$

= $\frac{556,416}{ 7,200}$

= $77.28 per machine hour

If the company incurs 7,300 machine hours then,

Total production cost = variable production quality cost + fixed production quality cost

                                    = $77.28 per machine hour × 7,300 +  $226,008

                                    = $564,144 + $226,008

                                     = $790,152

Total production quality cost per unit = $\frac{Total\ production\ cost}{Machine\ hours}$  

                                                  = $\frac{790,152}{ 7,300}$  

                                                  = $108.24 per machine hour