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P2-7: ETB ETB plans to manufacture a slim bamboo hard case for the Apple iPad, which will be sold for $65. ETB estimates that it

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P2-7: ETB ETB plans to manufacture a slim bamboo hard case for the Apple iPad, which will be sold for $65. ETB estimates that it can produce and sell between 3,000 and 5.000 bamboo cases a month, The following data summarize ETB's cost structure at various output (sales) levels Production (Units) 3,000 3.500 4.500 5,000 Variable manufacturing cost $36.000 $35.000 $36,000 S60,000 Fixed manufacturing cost 560.000 $60.000 S60,000 S60,000 Variable selling and admin cost $26.100 $28.000 $31.500 $35.000 Fixed selling and admin cost $40,000 $40,000 540,000 $40,000 Required: a What monthly production (sales) level minimizes the average cost of the bamboo iPad case? 5. How many bamboo iPad cases should ETB produce monthly We usually believe that variable costs are constant per unit-across the range of activity. In this case, it appears that the variable costs apply locally, but not across the entire range of activity. For example, the variable manufacturing costs per unit seems to be a local variable cost and changes as the activity range changes. That's not something we generally want to see in a problem, nevertheless, it happens here. Production units 3,000 3,500 4,500 5,000 Variable manufacturing cost $36,000 $35,000 $36,000 $60,000 Fixed manufacturing cost $60,000 $60,000 $60,000 $60,000 Variable selling and admin cost $26,100 $28,000 $31,500 $35,000 Fixed selling and admin cost S40,000 $40,000 $40,000 $40,000 Variable manufacturing cost per unit $36,000/3,000 =12 10 12 Variable selling and admin cost per unit 8 7 8 8.7 This creates a bit of tension between (1) wanting to produce as much as possible to spread the fixed cost across as many units as possible, and (2) recognizing that variable manufacturing costs per unit will increase to $12 per unit at 5,000 units

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