mathxl.com Cost Accounting ACC 210-400 18Spring Brandon Perez 1 1/20/18 8:12 AM Homework: Exercise 2-23 Sa Score: 0 of 6 pts 1 of 1 (1 complete) HW Score: 0%, 0 of 6 E2-23 (similar to) Question Help Chocolate Brand Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 4,600 per month. The machine costs $10,000 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 $1,200 per month. Chocolate Brand currently makes and sells 3,900 jaw-breake per month. Chocolate Brand buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 10 cents per jaw-breaker. Next year Chocolate Brand 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 Requirements 1. What is Chocolate Brand\'s current annual relevant range of output? 2. What is Chocolate Brand\'s current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost? 3. What will Chocolate Brand\'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 Chocolate Brand could buy an identical machine at the same cost as the one it already has.
Requirement 1:-
Currently the chocolate Brand\'s demand per month is 3,900 units per month, wheras it has the capacity to produce 4,600 units per month.
Hence it\'s annual range of output is 46,800 units to 54,000 units.
Requirement 2:-
Fixed manufacturing cost has 3 components. First is depreciation which can be calculated as 10,000/10 = $1,000 per year. Other fixed costs are $1,200 per month, hence $24,000 per year.
Hence total fixed manufacturing cost per year is $25,000. The variable cost is 10 cents per unit. Assuming the factory manufactures 46,800 units, then variable cost will be $4,680.
Requirement 3:-
The existing capacity of the factory is 54,000 units whereas the demand in the next year is expected to be 46,800+100%*46,800 = 93,600 units. Hence the company will get another machine at the same rate as the existing one. Hence the relevant range of output will be 93,600 units to 108,000 units.
The fixed manufacturing costs will increase as there will be a new Machinery and there will be an extra depreciation of $1,000 on the same.
The variable costs will decrease ny 10% to 9 cents per unit as the company will get a discount.
Hence the total fixed manufacturing cost shall be $26,000
The variable costs assuming 93,600 units are produced shall be $8,424.
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