Variable and Fixed Costs. Consolidated Motors specializes in producing one specialty vehicle. It is called Surfer and is styled to easily fit multiple surfboards in its back area and top-mounted storage racks. Consolidated has the following
Plant management costs, $1,992,000 per year
Cost of leasing equipment, $1,932,000 per year
Workers’ wages, $800 per Surfer vehicle produced
Direct materials costs: Steel, $1,400 per Surfer; Tires, $150 per tire, each Surfer takes 5 tires (one spare).
City license, which is charged monthly based on the number of tires used in production:
0–500 tires | $ 40,040 |
501–1,000 tires | $ 65,000 |
more than 1,000 tires | $249,870 |
Consolidated currently produces 170 vehicles per month.
- 1. What is the variable manufacturing cost per vehicle? What is the fixed manufacturing cost per month?
Required
- 2. Plot a graph for the variable manufacturing costs and a second for the fixed manufacturing costs per month. How does the concept of relevant range relate to your graphs? Explain.
- 3. What is the total manufacturing cost of each vehicle if 80 vehicles are produced each month? 205 vehicles? How do you explain the difference in the manufacturing cost per unit?
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Chapter 2 Solutions
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