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

Question

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

Mahlen Waugh · Accepted Answer

Final Answer : B, Explanation :  The average cost per unit for 5,000 units is $9.90. The average cost per unit for 5,001 units is $9.91. Thus, the incremental manufacturing cost for producing one additional unit is $9.91 - $9.90 = $0.01. Therefore, the incremental manufacturing cost for producing 1,000 additional units is $0.01 x 1,000 = $10.00. However, the company only needs to produce one additional unit, so the incremental manufacturing cost is $10.00 ÷ 1,000 = $0.01 = $0.010 rounded to $0.01. Therefore, the answer is B) $10.80.

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