Variable and Fixed Costs. Consolidated Motors specializes in producing one specialty vehicle. It is called Surfer and is styled to easily fit multiple surfboards in its back area and top-mounted storage racks. Consolidated has the following
Plant management costs, $1,992,000 per year
Cost of leasing equipment, $1,932,000 per year
Workers’ wages, $800 per Surfer vehicle produced
Direct materials costs: Steel, $1,400 per Surfer; Tires, $150 per tire, each Surfer takes 5 tires (one spare).
City license, which is charged monthly based on the number of tires used in production:
0–500 tires | $ 40,040 |
501–1,000 tires | $ 65,000 |
more than 1,000 tires | $249,870 |
Consolidated currently produces 170 vehicles per month.
- 1. What is the variable manufacturing cost per vehicle? What is the fixed manufacturing cost per month?
Required
- 2. Plot a graph for the variable manufacturing costs and a second for the fixed manufacturing costs per month. How does the concept of relevant range relate to your graphs? Explain.
- 3. What is the total manufacturing cost of each vehicle if 80 vehicles are produced each month? 205 vehicles? How do you explain the difference in the manufacturing cost per unit?
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Chapter 2 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
- Rundle Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,300 containers follows. Unit-level materials. Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Rundle for $2.60 each. Required a. Calculate the total relevant cost. Should Rundle continue to make the containers? b. Rundle could lease the space it currently uses in the manufacturing process. If leasing would produce $11,600 per month, calculate the total avoidable costs. Should Rundle continue to make the containers? Answer is complete but not entirely correct. $ a. Total relevant cost a. Should Rundle continue to make the containers? b. Total avoidable cost b. Should Rundle continue to make the containers? 190.650,000 Yes $24,180,000 $ 5,200 6,100 4,000 7,800…arrow_forwardFogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow: DirectLabor-Hours per Unit AnnualProduction Hubs 0.70 11,000 units Sprockets 0.30 45,000 units Additional information about the company follows: Hubs require $25 in direct materials per unit, and Sprockets require $19. The direct labor wage rate is $15 per hour. Hubs require special equipment and are more complex to manufacture than Sprockets. The ABC system has the following activity cost pools: Estimated Activity Activity Cost Pool (Activity Measure) Overhead Cost Hubs Sprockets Total Machine setups (number of setups) $ 16,200 100 80 180 Special processing (machine-hours) $ 188,000 4,700 0 4,700 General factory (organization-sustaining) $ 196,700 NA NA NA Determine the unit product cost of each product according to the ABC system. HUBS SPROCKETS Direct Materials…arrow_forwardCampbell Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,200 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* Allocated facility-level costs $ 6,900 6,400 4,100 9,600 26,600 *One-third of these costs can be avoided by purchasing the containers. Russo Container Company has offered to sell comparable containers to Campbell for $2.80 each. Required a. Calculate the total relevant cost. Should Campbell continue to make the containers? b. Campbell could lease the space it currently uses in the manufacturing process. If leasing would produce $12,800 per month, calculate the total avoidable costs. Should Campbell continue to make the containers? a. Total relevant cost Should Campbell continue to make the containers? b. Total avoidable cost Should Campbell continue to make the containers?arrow_forward
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