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Bellucci Corporation has provided the following information: Cost per Unit Cost per Period Direct materials $ 7.05 Direct labor $ 4.20 Variable manufacturing overhead $ 1.55 Fixed manufacturing overhead $ 124,000 Sales commissions $ 1.15 Variable administrative expense $ 0.40 Fixed selling and administrative expense $ 45,500 The incremental manufacturing cost that the company will incur if it increases production from 10,000 to 10,001 units is closest to (assume that the increase is within the relevant range):

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Answer:

$12.80

Explanation:

As we know, it the fixed cost component which remains same at all levels of activity, when the activity is in a relevant range.

When the activity changes there is an increment in cost, which is related to each unit produced: this is called variable component.

Any cost which is constant per unit, and changes in total with change in output is variable cost.

Here, variable cost are:

Direct material = $7.05

Direct Labor = $4.20

Variable manufacturing overhead = $1.55

Sales Commission = $1.15

Variable administrative expense = $0.40

Out of all the above cost components, the variable cost related to manufacturing each extra unit = Direct material + direct labor + variable manufacturing overhead = $7.05 + $4.20 + $1.55 = $12.80

Sales commission is chargeable only when goods are sold, and not when they are produced.

Administrative cost is not a manufacturing cost.

Therefore, incremental manufacturing cost = $12.80

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