Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

Production volume		14,200	units		16,000	units
Direct materials	$	921,580		$	1,038,400
Direct labor	$	248,500		$	280,000
Manufacturing overhead	$	1,008,200		$	1,038,260

The best estimate of the total cost to manufacture 15,100 units is closest to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $2,174,230
• $2,314,090
• $2,244,160
• $2,267,470

  Correct

Explanation

Note: There are several ways to compute the variable cost per unit for direct materials and direct labor.

Direct materials:

Variable cost per unit = Change in cost ÷ Change in activity

= ($1,038,400 – $921,580) ÷ (16,000 units – 14,200 units)

= $116,820 ÷ 1,800 units

= $64.90 per unit

Direct labor:

Variable cost per unit = Change in cost ÷ Change in activity

= ($280,000 – $248,500) ÷ (16,000 units – 14,200 units)

= $31,500 ÷ 1,800 units

= $17.50 per unit

Manufacturing overhead

Variable cost per unit = Change in cost ÷ Change in activity

= ($1,038,260 - $1,008,200) ÷ (16,000 units – 14,200 units)

= $30,060 ÷ 1,800 units

= $16.70 per unit

Total variable cost per unit = $64.90 per unit + $17.50 per unit + $16.70 per unit

= $99.10 per unit

Fixed cost = Total cost – Variable cost element

= $1,038,260 – ($16.70 per unit × 16,000 units)

= $1,038,260 – $267,200

= $771,060

Total fixed cost per month = $0 + $771,060 = $771,060

Total cost = Total fixed cost + Total variable cost

= $771,060 + ($99.10 per units × 15,100 units)

= $771,060 + $1,496,410

= $2,267,470