Sandford Company manufactures one product. Its variable manufacturing cost is $16 per unit; total fixed manufacturing cost is $600,000.Required:1.) Calculate Sandford's total manufacturing costs if it produces 10,000 units.2.) What would be the total cost per unit (including both fixed and variable costs) assuming that Sandford produces 10,000 units?3.) Calculate Sandford's total manufacturing costs if it produces 20,000 units.4.) What would be the total cost per unit assuming that Sandford produces 20,000 units?5.) Compare your answers from parts 2 and 4. If the cost per unit is different at 10,000 units than at 20,000 units, explain why.
What will be an ideal response?
1.) Total manufacturing costs = ($16 × 10,000) + $600,000 = $760,000
2.) Cost per unit = $760,000 ÷ 10,000 units = $76 per unit
3.) Total manufacturing costs = ($16 × 20,000) + $600,000 = $920,000
4.) Cost per unit = $920,000 ÷ 20,000 units = $46 per unit
5.) At 10,000 units, the cost per unit is $76; at 20,000 units, it is $46. The difference is caused by fixed costs: the fixed cost per unit decreases as the number of units increases.
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