2-23 Variable costs, fixed costs, relevant range. Dotball Candies 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 $9,500 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.
Dotball currently makes and sells 3,100 jaw-breakers per month. Dotball 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 Dotball’s current annual relevant range of output?
2. What is Dotball’s current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost?
3. What will Dotball’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.
2-27 Total and unit cost, decision making. Gayle’s Glassworks makes glass flanges for scientific use. Materials cost $1 per flange, and the glass blowers are paid a wage rate of $28 per hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for flanges are $28,000 per period. Period (nonmanufacturing) costs associated with flanges are $10,000 per period and are fixed.
1. Graph the fixed, variable, and total manufacturing cost for flanges, using units (number of flanges) on the x-axis.
2. Assume Gayle’s Glassworks manufactures and sells 5,000 flanges this period. Its competitor, Flora’s
Flasks, sells flanges for $10 each. Can Gayle sell below Flora’s price and still make a profit on the flanges?
3. How would your answer to requirement 2 differ if Gayle’s Glassworks made and sold 10,000 flanges this period? Why? What does this indicate about the use of unit cost in decision making?
2-31 Flow of Inventoriable Costs. Renka’s Heaters selected data for October 2014 are presented here (in millions):
Direct materials inventory 10/1/2014 $ 105
Direct materials purchased 365
Direct materials used 385
Total manufacturing overhead costs 450
Variable manufacturing overhead costs 265
Total manufacturing costs incurred during October 2014 1,610
Work-in-process inventory 10/1/2014 230
Cost of goods manufactured 1,660
Finished goods inventory 10/1/2014 130
Cost of goods sold 1,770
Calculate the following costs:
1. Direct materials inventory 10/31/2014
2. Fixed manufacturing overhead costs for October 2014
3. Direct manufacturing labor costs for October 2014
4. Work-in-process inventory 10/31/2014
5. Cost of finished goods available for sale in October 2014
6. Finished goods inventory 10/31/2014
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