Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 75,000 units. The variable cost of the sensor is $185.00 per unit, and the fixed costs of the plant are $12,375,000 annually. Current annual demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location.

Required

a. What cost per sensor should the cost system report to facilitate management decision making?

b. Given your answer to requirement (a), is there any cost of excess capacity? If yes, what is the cost of excess capacity, and how should it be reported? If no, why not?

c. How would your answers to requirements (a) and (b) change if the smallest manufacturing plant that one could build that was suitable for sensor manufacturing (owing to technology) was able to produce 75,000 sensors?