Question

Jamison Paints makes and sells paint to home improvement stores. Jamison's only plant can produce up to 12 million cans of paint per year. Current annual production is 10 million cans. Fixed manufacturing, selling, and administrative costs total $15 million per year. The variable cost of making and selling each can of paint is $6.00. Stockholders expect a 15% annual return on the company's $40 million of assets

Required:
What is Jamison's current total cost of making and selling 10 million cans of paint? What is the current cost per can of paint?

Answer 1

Jamison's current total cost of making and selling 10 million cans of paint is $75,000,000 and the current cost per can of paint is $7.5

Step-by-step explanation:

For computing the current total cost, we need to apply the formula which is shown below:

Total cost = Fixed cost + variable cost

where,

Fixed cost = $15,000,000

And, the variable cost = Annual production × variable cost per plant

= 10,000,000 × $6

= $60,000,000

Now put these values to the above formula

So, the value would equal to

= $15,000,000 + $60,000,000

= $75,000,000

Now the current cost per can of paint would be

= (Total cost) ÷ (Annual production)

= ($75,000,000) ÷ (10,000,000)

= $7.5 per can of paint