The variable costs of Gretts Company including direct material and direct labor amount to

$15 per hour with each unit requiring two hours of processing. Fixed costs of operating the present facilities whose normal capacity is 25,000 units amount to $500,000. Management is considering renting an additional building for $180,000 per period; it could process 5,000 units per period more than the normal capacity. Other fixed costs associated only with the rented building total $70,000.

Required:

a. Determine unit variable costs per hour, unit fixed costs per hour, average cost per hour, total differential cost, and differential cost per hour at these four capacity levels: 30,000 hours, 40,000 hours, 50,000 hours, and 60,000 hours. (Compare with preceding lower level.)

b. Which alternative would you advise? Explain the factors involved in your decision.