Question

Baker Corporation has provided the following production and average cost data for two levels of monthly production volume. The company produces a single product. Production volume 1,000 units 3,000 units Direct materials $ 30.90 per unit $ 30.90 per unit Direct labor $ 40.20 per unit $ 40.20 per unit Manufacturing overhead $ 64.60 per unit $ 33.80 per unit The best estimate of the total variable manufacturing cost per unit is:
(A) $89.50
(B) $18.40
(C) $71.10
(D) $30.90

Answer 1

Answer:

(B) $18.40

Explanation:

we build the equation system and solve for variable overhead

we must understand that overhead unit cost if calculate as follow:

variable overhead + fixed overhead / volume

so:

$\left \{ {{33.8=VMO + FMO/3,000} \atop {64.6=VMO + FMO/1,000}} \right.$

We rearrange:

$\left \{ {{FMO = (33.8-VMO) \times 3,000} \atop {FMO = (64.6-VMO) \times 1,000}} \right.$

We equalize:

$(33.8-VMO) \times 3,000 = (64.6-VMO) \times 1,000$

And now we solve:

(33.8 - VMO) x 3 = 64.6 - VMO

101.4 - 3 VMO = 64.6 - VMO

36.8 = 2VMO = 18.4