Cathy and Toms Specialty Ice Cream Company operates a small

Cathy and Tom\'s Specialty Ice Cream Company operates a small production facility for the local community. The facility has the capacity to make 14,400 gallons of the single flavor, GUI Chewy, annually. The plant has only two customers, Chuck\'s Gas &Go; and Marcee\'s Drive&Chew; DriveThru. Annual orders for Chuck\'s total 7,200 gallons and annual orders for Marcee\'s total 3,600 gallons. Variable manufacturing costs are $1.20 per gallon, and annual fixed manufacturing costs are $21,600. The ice cream business has two seasons, summer and winter. Each season lasts exactly six months. Chuck\'s orders 3,600 gallons in the summer and 3,600 gallons in the winter. Marcee\'s is closed in the winter and orders all 3,600 gallons in the summer In discussing their business, Cathy and Tom realize that there are really three seasons instead of two, the third being the fall and spring (as a combined season). Each of the three seasons lasts exactly four months. They also know that Marcee\'s opens in mid- spring and closes in mid-fall. Cathy and Tom check the order patterns and see the following demand (in gallons) in each of the three seasons Fall and WinterSpring 2.400 .200 Chuck\'s Marcee\'s Total 2400 2.400 200- 2.400 3,000 10.800 2.400 4800 Required: Design the cost system for Cathy and Tom showing the capacity costs and capacity in each season. (Round \"Fixed cost\" and \"Variable cost\" to 2 decimal places.) Capacity Costs Winter Total Unused Used Charge for unused Total capacity costs Production (gallons) Fixed cost (per gallon) Variable cost (per gallon Total product cost (per gallon)

Solution

Capacity costs

Winter

Fall/ Spring

Summer

Total

4800

4800

4800

Unused (Total - used)

2400

1200

0

Used

2400

3600

4800

Charge for unused

(2400 x 1.5)

3600

(3600 x 0.5)

1800

Total capacity costs

Production (Gallons)

2400

3600

4800

Fixed costs per gallon

1.5

1.5

1.5

(7200/2400)

3

(7200/3600)

2

(7200/4800)

1.5

Variable cost per gallon

1.2

1.2

1.2

Total production cost per gallon (Variable cost + Fixed cost)

4.2

3.2

2.7

Workings:

Since the annual capacity

14400 gallons

The 4 month\'s capacity (14400 /3)

4800 gallons

Capacity costs

Winter

Fall/ Spring

Summer

Total

4800

4800

4800

Unused (Total - used)

2400

1200

0

Used

2400

3600

4800

Fixed costs (21600/3)

7200

7200

7200

Capacity costs	Winter	Fall/ Spring	Summer
Total	4800	4800	4800
Unused (Total - used)	2400	1200	0
Used	2400	3600	4800
Charge for unused
(2400 x 1.5)	3600
(3600 x 0.5)	1800
Total capacity costs
Production (Gallons)	2400	3600	4800
Fixed costs per gallon	1.5	1.5	1.5
(7200/2400)	3
(7200/3600)	2
(7200/4800)		1.5
Variable cost per gallon	1.2	1.2	1.2
Total production cost per gallon (Variable cost + Fixed cost)	4.2	3.2	2.7