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# topic One - Topic One 2-22 1(1520 min Variable costs and...

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Topic One 2-22 (15–20 min.) Variable costs and fixed costs. 1. Variable cost per ton of beach sand mined Subcontractor \$ 80 per ton Government tax 50 per ton Total \$130 per ton Fixed costs per month 0 to 100 tons of capacity per day = \$150,000 101 to 200 tons of capacity per day = \$300,000 201 to 300 tons of capacity per day = \$450,000 2. \$450,000 \$300,000 \$150,000 100 200 300 Tons of Cap acity p er Day \$975,000 \$650,000 \$325,000 2,500 5,000 7,500 Tons Mined The concept of relevant range is potentially relevant for both graphs. However, the question does not place restrictions on the unit variable costs. The relevant range for the total fixed costs is from 0 to 100 tons; 101 to 200 tons; 201 to 300 tons, and so on. Within these ranges, the total fixed costs do not change in total. 3. Tons Mined per Day Tons Mined per Month Fixed Unit Cost per Ton Variable Unit Cost per Ton Total Unit Cost per Ton (1) (2) = (1) × 25 (3) = FC ÷ (2) (4) (5) = (3) + (4)

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(a) 180 4,500 \$300,000 ÷ 4,500 = \$66.67 \$130 \$196.67 (b) 220 5,500 \$450,000 ÷ 5,500 = \$81.82 \$130 \$211.82 The unit cost for 220 tons mined per day is \$211.82, while for 180 tons it is only \$196.67. This difference is caused by the fixed cost increment from 101 to 200 tons being spread over an increment of 80 tons, while the fixed cost increment from 201 to 300 tons is spread over an increment of only 20 tons.
2-27 (25 min.) Total and unit cost, decision making. 1. 0 10,000 20,000 30,000 40,000 50,000 60,000 0 5,000 10,000 Number of Flanges Total Manufacturing Costs Fixed Costs Variable Costs Total Manufacturing Costs Note that the production costs include the \$20,000 of fixed manufacturing costs but not the \$10,000 of period costs. The variable cost is \$1 per flange for materials, and \$2 per flange (\$20 per hour divided by 10 flanges per hour) for direct manufacturing labor. 1. The inventoriable (manufacturing) cost per unit for 5,000 flanges is \$3 × 5,000 + \$20,000 = \$35,000. Average (unit) cost = \$35,000 ÷ 5,000 units = \$7 per unit. This is below Fred’s selling price of \$8.25 per flange. However, in order to make a profit, Graham’s Glassworks also needs to cover the period (non-manufacturing) costs of \$10,000, or \$10,000 ÷ 5,000 = \$2 per unit. Thus total costs, both inventoriable (manufacturing) and period (non-manufacturing), for the flanges is \$7 + \$2 = \$9. Graham’s Glassworks cannot sell below Fred’s price of \$8.25 and still make a profit on the flanges. Alternatively, At Fred’s price of \$8.25 per flange: Revenue \$8.25 × 5,000 = \$41,250 Variable costs \$3.00 × 5,000 = 15,000

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Fixed costs 30,000 Operating Loss \$ (3,750 ) Graham’s Glassworks cannot sell below \$8.25 per flange and make a profit. At Fred’s price of \$8.25 per flange, the company has an operating loss of \$3,750. 3.
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topic One - Topic One 2-22 1(1520 min Variable costs and...

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