Variable costs, fixed costs, relevant range. Gummy Land Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 5,000 per month. The machine costs $6,500 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
Gummy Land currently makes and sells 3,900 jaw-breakers per month. Gummy Land buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 40¢ per jaw-breaker.
Next year Gummy Land 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 Gummy Land’s current annual relevant range of output?
Required
- 2. What is Gummy Land’s current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost?
- 3. What will Gummy Land’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 Gummy Land could buy an identical machine at the same cost as the one it already has.
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Chapter 2 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
- Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows: Direct materials $90 Direct labor 20 Factory overhead 10 Total $120 It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas: Purchase a plastic printer cover with snap-on assembly. This will reduce the amount of direct labor by nine minutes per unit. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 per unit. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 45% of the factory overhead is related to running injection molding machines. The direct…arrow_forwardMillennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows: Direct materials $90 Direct labor 20 Factory overhead 10 Total $120 It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas: Purchase a plastic printer cover with snap-on assembly. This will reduce the amount of direct labor by nine minutes per unit. Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 per unit. Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 45% of the factory overhead is related to running injection molding machines. The direct…arrow_forwardRooney Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,100 containers follows. Unit-level materials Unit-level labor Unit-level overhead Product-level costs* $ 5,200 6,500 3,600 9,300 26,600 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 Rooney for $2.70 each. Required a. Calculate the total relevant cost. Should Rooney continue to make the containers? b. Rooney could lease the space it currently uses in the manufacturing process. If leasing would produce $11,500 per month, calculate the total avoidable costs. Should Rooney continue to make the containers? a. Total relevant cost Should Rooney continue to make the containers? b. Total avoidable cost Should Rooney continue to make the containers?arrow_forward
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