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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
ISBN: 9781337902663

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BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
ISBN: 9781337902663
Textbook Problem

Relevant range and fixed and variable costs

Child Play Inc. manufactures electronic toys within a relevant range of 20,000 to 150,000 toys per year. Within this range, the following partially completed manufacturing cost schedule has been prepared:

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Complete the cost schedule, identifying each cost by the appropriate letter (a) through (o).

To determine

Complete the cost schedule by identifying each cost by the appropriate letter (a) through (o).

Explanation

Variable costs: These are the costs that proportionately change with the changes in the activity base such as units of production. Common examples of variable costs are direct materials and direct labor costs.

Fixed Costs: These are the costs that remain constant in total dollar amount irrespective to the changes in the activity base such as units of production. Common examples of fixed costs are factory overhead costs and straight-line depreciation expenses.

Complete the cost schedule by identifying each cost by the appropriate letter (a) through (o).

Cost Schedule
Components produced (units)40,00080,000120,000
Total costs:   
Total variable costs$720,000(d) $1,440,000(j) $2,160,000
Total fixed costs$600,000(e)  $600,000(k)   $600,000
Total costs$1,320,000(f) $2,040,000(l) $2,760,000
Cost per unit:   
Variable cost per unit(a) $18.00(g)  $18.00(m) $18.00
Fixed cost per unit(b) $15.00      (h)    $7.50(n)   $5.00
Total cost per unit(c) $33.00(i)   $25.50(o) $23.00

Table (1)

Working notes:

(a)

Determine the variable cost per unit for 40,000 units.

Total variable cost =$720,000

Number of units =40,000

Variablecostperunit =TotalvariablecostNumberofunitsproduced=$720,00040,000units=$18.00perunit

(b)

Determine the fixed cost per unit for 40,000 units.

Total fixed cost =$600,000

Number of units =40,000

Fixedcostperunit =TotalfixedcostNumberofunitsproduced=$600,00040,000units=$15.00perunit

(c)

Determine the total cost per unit.

Variable cost per unit =$18.00 per unit (refer (a))

Fixed cost per unit =$15.00 per unit (refer (b))

Totalcostperunit =(Variablecostperunit)+(Fixedcostperunit)=$18.00+$15.00=$33.00perunit

(d)

Determine the total variable cost for 80,000 units.

Variable cost per unit =$18.00 per unit (refer (a))

Number of units =80,000

Totalvariablecost =(Variablecostperunit)×(Numberofunitsproduced)=$18.00perunit×80,000units=$1,440,000

(e)

Determine the total fixed cost for 80,000 units.

Total fixed cost always remains same irrespective to the number of units produced. As given, the fixed cost for 40,000 units is $600,000. Thus, for 80,000 units, the amount of fixed cost would remain same, that is $600,000.

(f)

Determine the total costs.

Total variable cost for 80,000 units =$1,440,000 (refer (d))

Total fixed cost for 80,000 =$600,000 (refer (e))

Totalcost =(TotalVariablecost)+(TotalFixedcost)=$1,440,000+$600,000=$2,040,000

(g)

Determine the variable cost per unit for 80,000 units.

Variable cost per unit does not change with the change in the number of units produced.

Total variable cost =$1,440,000

Number of units =80,000

Variablecostperunit =TotalvariablecostNumberofunitsproduced=$1,440,00080,000units=$18

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