Question

Anderson 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 4,000 units 5,000 units Direct materials $ 99.20 per unit $ 99.20 per unit Direct labor $ 45.50 per unit $ 45.50 per unit Manufacturing overhead $ 94.00 per unit $ 77.60 per unit The best estimate of the total monthly fixed manufacturing cost is:
(A) $388,000
(B) $954,800
(C) $376,000
(D) $328,000

Answer 1

Answer:

Option (D) is correct.

Explanation:

Calculation of total manufacturing overhead:-

4000 units manufacturing overhead:

= Production volume ×  Manufacturing overhead

= 4,000 × $94

= $376,000

5000 units manufacturing overhead:

= Production volume ×  Manufacturing overhead

= 5,000 × $77.60

= $388,000

Variable cost per unit:

$=\frac{5000\ units\ manufacturing\ overhead-4000\ units\ manufacturing\ overhead}{1000}$

$=\frac{388,000-376,000}{1000}$

= 12

Fixed cost = Total cost - variable cost

                 = $388,000 - 5,000 × 12

                 = $388,000 - $60,000

                 = $328,000

So total monthly fixed manufacturing cost is $328,000.