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:

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

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

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).

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

Variable cost per unit =Total variable costNumber of units produced=$720,00040,000 units=$18.00 per unit

(b)

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

Total fixed cost =$600,000

Number of units =40,000

Fixed cost per unit =Total fixed costNumber of units produced=$600,00040,000 units=$15.00 per unit

(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))

Total cost per unit =(Variable cost per unit)+(Fixed cost per unit)=$18.00+$15.00=$33.00 per unit

(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

Total variable cost =(Variable cost per unit)×(Number of units produced)=$18.00 per unit×80,000 units=$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))

Total cost =(TotalVariable cost)+(Total Fixed cost)=$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

Variable cost per unit =Total variable costNumber of units produced=$1,440,00080,000 units=$18