Question

Variable costs, fixed costs, relevant range. Gumball​'s manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 4,400 per month. The machine costs S9,500 and is depreciated using straight-line depreciation over 10 years assuming zero residual value. Rent for the factory space and warehouse and other fixed manufacturing overhead costs total $1,300 per month. Gumball​'s currently makes and sells 3,100 jaw-breakers per month. Gumball​'s buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 10 cents per jawbreaker. Next year Dotball expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same. 1. What is Gumball​'s current annual relevant range of output? 2. What is Gumball​'s current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost? 3. What will Gumball​'s relevant range of output be next year? How, if at all, will total annual fixed and variable manufacturing costs change next year? Assume that if it needs to Dotball could buy an identical machine at the same cost as the one it already has.

Answer 1

1. The current annual relevant range of output for Gumball's is 52,800 jawbreakers. 2. The current annual fixed manufacturing cost is $15,600, and the annual variable manufacturing cost is $37,200. 3. Next year, the relevant range of output will be 105,600 jawbreakers. The total annual fixed manufacturing costs will remain the same, and the total annual variable manufacturing costs will increase to $74,400.

Step-by-step explanation:

1. To calculate the annual relevant range of output, we need to multiply the monthly production capacity (4,400 jawbreakers) by the number of months in a year (12). The annual relevant range of output for Gumball's is 52,800 jawbreakers.

2. The fixed manufacturing cost within the relevant range can be calculated by adding the monthly rent and other fixed manufacturing overhead costs. In this case, it is $1,300 per month. To calculate the annual fixed manufacturing cost, we multiply this by 12. The annual fixed manufacturing cost for Gumball's is $15,600.

The annual variable manufacturing cost can be calculated by multiplying the materials cost per jawbreaker (10 cents) by the number of jawbreakers produced and sold per month (3,100). To calculate the annual variable manufacturing cost, we multiply this by 12. The annual variable manufacturing cost for Gumball's is $37,200.

3. Next year, with a 100% increase in demand, the relevant range of output will increase by 100%. So the new relevant range of output will be 2 times the current relevant range, which is 105,600 jawbreakers. The total annual fixed manufacturing costs will remain the same, as they do not change with the increase in output.

The total annual variable manufacturing costs will increase by 100%, as they are directly proportional to the number of jawbreakers produced and sold. So the new annual variable manufacturing cost will be $37,200 multiplied by 2, which is $74,400.

Answer 2

1.- the current relevant range will be up to 52,800 as that is the maximum a single machine can produce.

2.- fixed manufacturing cost: 16,550

materials cost: 3,720

3.- relevant range 105,600

annual fixed cost: 17,500

variable manufacturing cost 6,696

Step-by-step explanation:

1.- production 4,400 units per month x 12 months = 52,800

2.-

depreciation on machine: 9,500 / 10 year =950

rent espace 1,300 per month x 12 months = 15,600

total fixed: 16,550

variable manufacturing: 10 cent per unit of materials

sale: 3,100 per month x 12 month x 10 cent per unit = 3,720

3.-

we are going to need an addiional machine those the relevant range will be of 52,800 per machine x 2 = 105,600

fixed cost:

depreciation: 950 per machine x 2 = 1,900

rent espace: 15,600

Total fixed manufacturing 17,500

variable manufacturing:

cost per unit: 10 cent less 10% discount = 9 cent

6,200 per month x 12 month x 9 cent = 6,696