Prairie, Inc. produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each unit is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit?

Question

Business

Celeste Lin

30 September, 21:48

Prairie, Inc. produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each unit is sold for $50 and requires direct material worth $30 and direct labor worth $5. Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit?

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Tanner · Answer 1

Variable cost = $42

Explanation:

Giving the following information:

Each unit is sold for $50

Direct material worth $30

Direct labor worth $5.

Manufacturing overhead cost is $10 per unit of which 70% is variable.

The incremental cost is the variable cost (there is available capacity)

Variable cost = direct material + direct labor + variable manufacturing overhead = 30 + 5 + (10*0.7) = $42