Glassworks makes glass flanges for scientific use. Materials cost $2 per flange, and the glass blowers are paid a wage rate of $21

per hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for flanges are $24,000 per period. Period (non-manufacturing) costs associated with flanges are $14,000 per period, and are fixed.

Requirements

1.	Fred's Flasks, sells flanges for $8.75 each. Can Graham sell below Fred's price and still make a profit on the flanges? Assume Graham produces and sells 6,000 flanges this period.
2.	How would your answer to requirement 1 differ if Graham's Glassworks made and sold 9,000 flanges this period? Why? What does this indicate about the use of unit cost in decision making?

Requirement 1. Fred's Flasks, sells flanges for

$8.75

each. Can

Graham

sell below Fred's price and still make a profit on the flanges? Assume

Graham

produces and sells

6,000

flanges this period.

Begin by determining the formula used to calculate the total cost per unit. Choose the correct answer below.

A.

(Total fixed

costs+Total

variable

costs)Wage

rate per

hour=Total

cost per unit

B.

(Materials cost per

unit+Wage

rate per

hour)Units

produced and

sold=Total

cost per unit

C.

(Total fixed

costs+Total

variable

costs)Materials

cost per

unit=Total

cost per unit

D.

(Total fixed

costs+Total

variable

costs)Units

produced and

sold=Total

cost per unit

Part 2

Complete the sentence below. (Round the total cost per unit to two decimal places.)

The total cost per unit to manufacture 6,000 flanges is _____- therefore, they_____( can/ can not)

make a profit when compared to Fred's Flasks selling price of $8.75 each.

Requirement 2. How would your answer to requirement 1 differ if Graham's Glassworks made and sold 9,000

flanges this period? Why? What does this indicate about the use of unit cost in decision making? (Round the total cost per unit to two decimal places.)

The total cost per unit to manufacture 9,000 flanges would be _____

Part 4

With production and sales at this level, the company ______(could/ could not) potentially make a profit if the selling price is below $8.75

each. Managers must be cautious using unit costs for decision making because _______( total FC/ total VC)

do not change at the unit level.