COST ACCOUNTING
16th Edition
ISBN: 9781323694008
Author: Horngren
Publisher: PEARSON C
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Chapter 2, Problem 2.28E
Variable costs, fixed costs, relevant range. Gummy Land Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 5,000 per month. The machine costs $6,500 and is
Gummy Land currently makes and sells 3,900 jaw-breakers per month. Gummy Land buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 40¢ per jaw-breaker.
Next year Gummy Land expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same.
- 1. What is Gummy Land’s current annual relevant range of output?
Required
- 2. What is Gummy Land’s current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost?
- 3. What will Gummy Land’s relevant range of output be next year? How, if at all, will total annual fixed and variable
manufacturing costs change next year? Assume that if it needs to Gummy Land could buy an identical machine at the same cost as the one it already has.
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Variable costs, fixed costs, relevant range. Gummy Land Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 5,000 per month. The machine costs $6,500 and is depreciated using straight-line depreciation over 10 years assuming zero residual value. Rent for the factory space and warehouse and other fixed manufacturing overhead costs total $1,200 per month. Gummy Land currently makes and sells 3,900 jaw-breakers per month. Gummy Land buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 40¢ per jaw-breaker. Next year Gummy Land expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same.
Required:
What is Gummy Land’s current annual relevant range of output?
What is Gummy Land’s current annual fixed manufacturing cost within the relevant…
Notson, Inc. produces several models of clocks. An outside supplier has offered to produce the
commercial clocks for Notson for $420 each. Notson needs 1,200 clocks annually. Notson has provided
the following unit costs for its commercial clocks:
Direct materials
Direct labor
Variable overhead
Fixed overhead (40%
avoidable)
$100
140
80
150
What is the incremental effect on net income if Notson choses to outsource the production of the
1,000 clocks annually?
Should Notson make or buy the clocks?
Millennium Printers Inc. manufactures color laser printers. Model L-1819 presently sells for $150 and has a total product cost of $120, as follows:
Direct materials
$90
Direct labor
20
Factory overhead
10
Total
$120
It is estimated that the competitive selling price for color laser printers of this type will drop to $140 next year. Millennium Printers wants to establish a target cost to maintain its historical markup percentage on product cost. Engineers have provided the following cost reduction ideas:
Purchase a plastic printer cover with snap-on assembly. This will reduce the amount of direct labor by nine minutes per unit.
Add an inspection step that will add six minutes per unit of direct labor but reduce the materials cost by $3 per unit.
Decrease the cycle time of the injection molding machine from four minutes to three minutes per part. Thirty percent of the direct labor and 45% of the factory overhead is related to running injection molding machines.
The direct…
Chapter 2 Solutions
COST ACCOUNTING
Ch. 2 - Define cost object and give three examples.Ch. 2 - Define direct costs and indirect costs.Ch. 2 - Prob. 2.3QCh. 2 - Name three factors that will affect the...Ch. 2 - Define variable cost and fixed cost. Give an...Ch. 2 - What is a cost driver? Give one example.Ch. 2 - What is the relevant range? What role does the...Ch. 2 - Explain why unit costs must often be interpreted...Ch. 2 - Prob. 2.9QCh. 2 - What are three different types of inventory that...
Ch. 2 - Distinguish between inventoriable costs and period...Ch. 2 - Define the following: direct material costs,...Ch. 2 - Describe the overtime-premium and idle-time...Ch. 2 - Define product cost. Describe three different...Ch. 2 - What are three common features of cost accounting...Ch. 2 - Prob. 2.16MCQCh. 2 - Comprehensive Care Nursing Home is required by...Ch. 2 - Frisco Corporation is analyzing its fixed and...Ch. 2 - Year 1 financial data for the ABC Company is as...Ch. 2 - The following information was extracted from the...Ch. 2 - Computing and interpreting manufacturing unit...Ch. 2 - Direct, indirect, fixed, and variable costs....Ch. 2 - Classification of costs, service sector. Market...Ch. 2 - Classification of costs, merchandising sector....Ch. 2 - Classification of costs, manufacturing sector. The...Ch. 2 - Variable costs, fixed costs, total costs. Bridget...Ch. 2 - Variable and Fixed Costs. Consolidated Motors...Ch. 2 - Variable costs, fixed costs, relevant range. Gummy...Ch. 2 - Prob. 2.29ECh. 2 - Cost drivers and functions. The representative...Ch. 2 - Total costs and unit costs, service setting....Ch. 2 - Total and unit cost, decision making. Gayles...Ch. 2 - Inventoriable costs versus period costs. Each of...Ch. 2 - Computing cost of goods purchased and cost of...Ch. 2 - Cost of goods purchased, cost of goods sold, and...Ch. 2 - Flow of Inventoriable Costs. Renkas Heaters...Ch. 2 - Cost of goods manufactured, income statement,...Ch. 2 - Cost of goods manufactured, income statement,...Ch. 2 - Income statement and schedule of cost of goods...Ch. 2 - Interpretation of statements (continuation of...Ch. 2 - Income statement and schedule of cost of goods...Ch. 2 - Terminology, interpretation of statements...Ch. 2 - Labor cost, overtime, and idle time. David...Ch. 2 - Missing records, computing inventory costs. Ron...Ch. 2 - Comprehensive problem on unit costs, product...Ch. 2 - Prob. 2.46PCh. 2 - Cost classification; ethics. Paul Howard, the new...Ch. 2 - Prob. 2.48P
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