Indian Motorcycle, Americas first motorcycle company, introduced its 2016 Indian Scout Sixty model to rave reviews. The resurrection of the Indian Scout has been a tremendous success for Indian Motorcycle Co., the 2015 Scout becoming one of the fastest-selling models in company history. It was so successful in fact, production was scrambling to keep up with demand. Striking while the coals are hot, Indian is at it again as the 2016 Scout Sixty made its international debut in Milan at EICMA 2015.

The name refers to the motorcycles 60 cubic inches of displacement in a 60-degree V-Twin. The Sixty is a more introductory level Scout that opens more doors for Indian in the global market where smaller-displacement bikes are the norm instead of the exception. At 999cc, the 2016 Indian Scout Sixty is still a big bike by international standards though, but can still serve as a gateway to Indian ownership. The company is currently producing 50 motorcycles per month that sell at a starting base price of $9,000 each.

Monthly cost data:

Direct materials used (aluminum frames, tires, etc.) $ 60,000 Administrative salaries $ 10,000

Factory managers salary 8,000 Advertising for motorcycles 2,500

Sales commissions 5,000 Insurance, factory building & equipment 1,800

Power for operating factory equipment 1,500 Depreciation, factory equipment 800

Indirect materials (lubricants, solders, etc.), factory 2,700 Rent, factory building 5,000

General office supplies, (billing) 1,200 Utilities, factory 2,600 Wages for assembly line workers 95,000 Rent, administrative offices 10,000

Complete Part 1 using the answer sheet prepared below. Enter each cost item from the list above into the answer sheet below, placing the dollar amount under the appropriate headings. As examples, the first two in the list have been completed for you. Note that each item is classified in two ways: first, as either variable or fixed with respect to the number of units (motorcycles) produced and sold; and second, as either a period cost (selling and administrative cost) or a product cost. After you have completed Part 1, then complete Part 2 by adding up the total dollar amounts in each column (including the example amounts) and typing this amount into the last row. Parts 3 and 4 (extra credit) are on page 3.

Cost Behavior Period Costs Product Costs

Cost Item	Variable	Fixed	Selling & Administrative Costs	Direct	Indirect
Example: Direct materials used (aluminum, frames, tires, etc.)	$60,000			$60,000
Example: Administrative salaries		$10,000	$10,000
1. Factory managers salary
2. Advertising for motorcycles
3. Sales commissions
4. Insurance, factory building & equipment
5. Power for operating factory equipment
6. Depreciation, factory equipment
7. Indirect materials (lubricants, solders, etc.), factory
8. Rent, factory building
9. General office supplies (billing)
10. Utilities, factory
11. Wages for assembly line workers
12. Rent, administrative offices
Total Costs (Part 2: Worth 2.5 pts.)	$?	$?	$?	$?	$?

Add all costs in each column including the example costs already listed and type this number into the table above.

Compute the total average product cost per unit to produce one motorcycle (show all computations):

Indian Motorcycle was trying to break into the European market with the Indian Scout Sixty by positioning it as an alternative to the smaller models popular in Western and Eastern Europe. However, due to the volatility of the current market caused by the recent exit of Great Britain from the European Union(EU), there has been a decrease in demand. Though the company believes this will only be a short-term drop in demand, current production has dropped to 40 motorcycles per month. Would you expect the cost per motorcycle to increase, decrease, or remain unchanged? Explain. Do not just answer increase, decrease, or remain unchanged. You need to explain why the average cost will increase, decrease, or remain unchanged.

Determine the new average product cost per motorcycle if 40 motorcycles are produced next month.