Question
P 7-17: Vorma Vorma manufactures two proprietary all-natural fruit antioxidant food additives that are approved by the U.S. Food and Drug Administration. One is
P 7-17: Vorma Vorma manufactures two proprietary all-natural fruit antioxidant food additives that are approved by the U.S. Food and Drug Administration. One is for liquid vitamins (LiqVita) and the other is used by dry cereal producers (Dry). Both of these products are sold only in the United States, and although they both share common chemistry and manufacturing, their end markets are completely separated. Both are produced in the same plant and share common manufacturing processes, such as purchasing, quality control, human resources, and so forth. These common fixed overhead costs amount to $1,500,000 per month. Each product also has its own directly traceable fixed costs, such as dedicated equipment Page 305 leases used only by one of the two products, dedicated product engineers, and so forth. The following table summarizes the operations of Vorma for a typical month. Units Price per unit Variable cost per unit Liq Vita Dry 200,000 75,000 $10 $21 $6 $90,000 $11 $110,000 Own fixed costs per month Again, the "Own fixed costs" consist of all fixed costs that can be traced directly to one of the two products (LiqVita and Dry), and these costs do not vary with the number of units produced. Required:
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