What is the cost of producing the 8 000 units?

Question

ScanSolve AI Tutor · Accepted Answer

To determine the cost of producing 8,000 units, we first need to separate the variable and fixed components of each cost.

Calculate the variable cost per unit for each cost category.
The change in activity level is $6,000 - 5,000 = 1,000$ units.
- Direct Materials: Change in cost = \12,000 - $10,000 = $2,000 $Variable cost per unit =$ \frac{$2,000}{1,000 units} = $2 \text{ per unit}$
- Direct Labour: Change in cost = \18,000 - $15,000 = $3,000 $Variable cost per unit =$ \frac{$3,000}{1,000 units} = $3 \text{ per unit}$
- Production Overheads: Change in cost = \18,000 - $16,000 = $2,000 $Variable cost per unit =$ \frac{$2,000}{1,000 units} = $2 \text{ per unit}$
Calculate the total variable cost per unit.
$\text{Total Variable Cost per Unit} = \$2 + \$3 + \$2 = \$7 \text{ per unit}$
Calculate the fixed production overheads.
Using the 5,000 units activity level:
$\text{Total Production Overheads} = (\text{Variable Cost per Unit} \times \text{Units}) + \text{Fixed Overheads}$
$\$16,000 = (\$2 \times 5,000) + \text{Fixed Overheads}$ $\$16,000 = \$10,000 + \text{Fixed Overheads}$ $\text{Fixed Overheads} = \$16,000 - \$10,000 = \$6,000$
Calculate the total cost for producing 8,000 units.
$\text{Total Cost} = (\text{Total Variable Cost per Unit} \times \text{Number of Units}) + \text{Fixed Overheads}$
$\text{Total Cost} = (\$7 \text{ per unit} \times 8,000 \text{ units}) + \$6,000$ $\text{Total Cost} = \$56,000 + \$6,000$ $\text{Total Cost} = \$62,000$

The cost of producing 8,000 units is \boxed{\text{B } \62,000}$.

Answer