Basil's Framing manufactures picture frames in one workshop, which has a practical capacity of 40,000 frames. The variable cost of a frame is $24 per unit, and the fixed costs of the workshop are $392,000 annually. Current annual demand is 28,000 frames. Basil's Framing bought the current workshop because of forecasts that demand for the frames would grow. Required: a. What cost per frame should the cost system report to facilitate management decision making? b. What is the cost of excess capacity? c1. What cost per frame would the cost system report if the smallest manufacturing plant that could be built was able to produce 35,000 frames? What would be the cost of excess capacity? Note: Assume that capacity cost is proportional to volume. c2. What cost per frame would the cost system report if the smallest manufacturing plant that could be built was able to produce 35,000 frames? What would be the cost of excess capacity? Note: Assume that plant capacity is fixed.
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Basil's Framing manufactures picture frames in one workshop, which has a practical capacity of 40,000 frames. The variable cost of a frame is $24 per unit, and the fixed costs of the workshop are $392,000 annually. Current annual demand is 28,000 frames. Basil's Framing bought the current workshop because of forecasts that demand for the frames would grow.
Required:
a. What cost per frame should the cost system report to facilitate management decision making?
b. What is the cost of excess capacity?
c1. What cost per frame would the cost system report if the smallest manufacturing plant that could be built was able to produce 35,000 frames? What would be the cost of excess capacity? Note: Assume that capacity cost is proportional to volume.
c2. What cost per frame would the cost system report if the smallest manufacturing plant that could be built was able to produce 35,000 frames? What would be the cost of excess capacity? Note: Assume that plant capacity is fixed.