Mega Manufacturing is considering whether to increase the production of one of its products, the Mega Rototiller. The product has done better than expected, and management wishes to figure out the costs of increasing production (and sales) from 10,000 units to 12,500 units per month.
The following data pertain to the current production of 10,000 units per month.

Required:
Determine the expected increase in costs if Mega decides to produce 12,500 units per month. This increase would last for two months, and then Mega would revert to its production level of 10,000 units per month. Be sure to consider the nature of the cost and its controllability in youranswer.

Detail Traced Determined as 10% of labor cost Number of Units 10,000 Materials and components Direct labor $120,000 115,000 Traced Supplies Oils and lubricants Machine depreciation Plant heating and lighting Plant rental Freight out Sales commissions Sales office administration Corporate office costs Total product cost 11,500 4,500 At $1.50 per machine hour 67,500At $22.50 per machine hour 20,000 Based on area occupied 12,000 Based on area occupied 2,500 20,000 25,000 2,400 $400,400 Actual cost At 4% of sales revenue Allocated based on sales S Allocated based on head count