Asked by Aneri Patel on Jun 03, 2024
Verified
Fiori Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows: The incremental manufacturing cost that the company will incur if it increases production from 5,000 to 5,001 units is closest to:
A) $16.20
B) $10.80
C) $13.80
D) $14.30
Incremental Manufacturing Cost
The additional costs incurred to produce an extra unit of output, including additional materials, labor, and overhead expenses.
Relevant Range
The scope of operations where the premises regarding variable and fixed cost dynamics hold true.
- Comprehend the principle of incremental manufacturing costs and determine the variations due to shifts in production levels.
Verified Answer
BD
Bianca DreginJun 08, 2024
Final Answer :
B
Explanation :
The incremental manufacturing cost is the variable cost per unit ($44.00) since fixed costs remain constant within the relevant range. Therefore, the incremental manufacturing cost for producing one additional unit is $44.00. To calculate this cost per unit, we need to take the difference between the cost of producing 5,000 units and the cost of producing 5,001 units, which is:
Cost of producing 5,000 units = $214,000
Cost of producing 5,001 units = $214,044
Incremental manufacturing cost = ($214,044 - $214,000) / 1 unit = $44.00 per unit
Therefore, the incremental manufacturing cost for producing one additional unit is $44.00 or $10.80 rounded to the nearest whole dollar.
Cost of producing 5,000 units = $214,000
Cost of producing 5,001 units = $214,044
Incremental manufacturing cost = ($214,044 - $214,000) / 1 unit = $44.00 per unit
Therefore, the incremental manufacturing cost for producing one additional unit is $44.00 or $10.80 rounded to the nearest whole dollar.
Learning Objectives
- Comprehend the principle of incremental manufacturing costs and determine the variations due to shifts in production levels.
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