In the question, do I calculate the changes for fixed costs as changing with the

Question

In the question, do I calculate the changes for fixed costs as changing with the number of units? Example, would fixed overhead for 3500 units be 700,000? Also, is the same concept applied to non manufacturing costs? I cannot follow how the study question provided the figures on the solution page. http://www.chegg.com/homework-help/comprehensive-differential-costing-problem-troy-manufacturin-chapter-7-problem-61psc-solution-9781111571269-exc

Comprehensive differential costing problem. Troy Manufacturing, Inc., produces exercise bicycles. The costs of manufacturing and marketing exercise bicycles at the company's normal volume of 3,000 units per month follow TROY MANUFACTURING Costs per Unit Unit Manufacturing Costs Variable Materials Variable Labor Variable Overhead Fixed Overhead $100 150 50 200 Total Unit Manufacturing Unit Nonmanufacturing Costs Variable Fixed $500 $100 100 Total Unit Nonmanufacturing Costs Total Unit Costs 200 $700 Unless otherwise stated, assume that the situations described in the questions are not connected; treat each independently. Unless otherwise stated, assume a regular selling price of $1,000 per unit and a volume of 3,000 bicycles per month a. Market research estimates that volume could be increased to 3,500 units, which is well within production capacity limitations, if the price were cut from $1,000 to $900 per unit. Assuming that the cost behavior patterns implied by the data given above are correct, would you recommend taking this action? What would be the impact on monthly sales, costs, and income?

Explanation / Answer

Existing at 3000 Units Estimated at 3500 Units Sales 3000*1000 3,000,000 3500*900          3,150,000 Manufacturing cost: Material 300,000 350,000 Labour 450,000 525,000 Variable overhead 150,000 175,000 Fixed overhead 600,000 600,000 Manufacturing cost 1,500,000 1,650,000 Non Manufacturing cost: Variable 300,000 350,000 Fixed 300,000 300,000 Total Non Manufacturing cost 600,000 650,000 Total Cost 2,100,000 2,300,000 Net Profit Sales-Total cost 900,000 850,000 No I would not recommend this because of profit decreases from existing level.

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