Question
Bubly-Cola pends $1.50 on directmaterials, directlabour, and variable manufacturing overhead for every unit(12-pack ofsoda) it produces. Fixed manufacturing overhead costs $6 million per year. Theplant,
Bubly-Cola pends $1.50 on directmaterials, directlabour, and variable manufacturing overhead for every unit(12-pack ofsoda) it produces. Fixed manufacturing overhead costs $6 million per year. Theplant, which is currently operating at only 70% ofcapacity, produced 30 million units this year. Management plans to operate closer to full capacity nextyear, producing 40 million units. Management does not anticipate any changes in the prices it pays formaterials, labour, and manufacturing overhead.
Requirements
What is the current total product cost(for the 30 millionunits), including fixed and variablecosts?
b.
What is the current average product cost perunit?
c.
What is the current fixed cost perunit?
d.
What is the forecasted total product cost next year(for the 40 millionunits)?
e.
What is the forecasted average product cost nextyear?
f.
What is the forecasted fixed cost perunit?
g.
Why does the average product cost decrease as productionincreases?
Requirement a. What is the current total product cost(for the 30 millionunits), including fixed and variablecosts?
Determine theformula, then calculate the current total product cost.
+
=
Total product costs
million
+
million
=
million
Requirement b. What is the current average product cost perunit?
Determine theformula, then calculate the current average product cost per unit. (Round your answer to the nearestcent.)
Current average
/
=
product cost per unit
million
/
million
=
per unit
Requirement c. What is the current fixed cost perunit?
Determine theformula, then calculate the current fixed cost per unit. (Round your answer to the nearestcent.)
/
=
Current fixed cost per unit
million
/
million
=
per unit
Requirement d. What is the forecasted total product cost next year(for the 40 millionunits)?
Determine theformula, then calculate the forecasted total product cost next year.
Forecasted
+
=
total product costs
million
+
million
=
million
Requirement e. What is the forecasted average product cost nextyear?
Determine theformula, then calculate the forecasted average product cost per unit next year. (Round your answer to the nearestcent.)
Forecasted average
/
=
product cost per unit
million
/
million
=
per unit
Requirement f. What is the forecasted fixed cost perunit?
Determine theformula, then calculate the forecasted fixed cost per unit. (Round your answer to the nearestcent.)
/
=
Forecasted fixed cost per unit
million
/
million
=
per unit
Requirement g. Why does the average product cost decrease as productionincreases?
The average product cost decreases as production volume increases because the company is
adding more fixed costs
spreading its fixed costs
spreading its variable costs
over 10 million more units. The company will be operating
less
more
efficiently, so the average cost of making each unit decreases.
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Horngrens Accounting The Financial Chapters
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
10th Edition
0133117561, 978-0133117561
