Detailed Answer
Answer (B) is correct. Since variable costs are constant across the relevant range, the total variable cost for September will be $1,664,000 (260,000 units × $6.40). Since the normal production run is 50,000 units, and no indication is given that Tyler’s machinery can handle a larger run, we can conclude that five batches were needed in August (220,000 units total production ÷ 50,000 units per batch = 4.4 batches). The setup cost for a batch must therefore be $176,000 ($880,000 ÷ 5 setups). Six setups will be required for September (260,000 units total production ÷ 50,000 units per batch = 5.2 batches), for a total of $1,056,000 in setup costs ($176,000 × 6 setups). Fixed costs of $1,210,000 are unchanging within the relevant range. Total budgeted production costs for September are therefore: Variable costs $1,664,000 Batch set-up cost 1,056,000 Fixed costs 1,210,000 Total $3,930,000