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costacctg13_sm_ch10

# 2 expectedcosttomake 43200015 36000 36000bicycleframes

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Unformatted text preview: Hours Billed 10­26 (20 min.) Cost­volume­profit and regression analysis. 1a. Average cost of manufacturing = Total manufactur ng costs i Number of bicycle frames \$900,000 = \$30 per frame 30,000 = This cost is greater than the \$28.50 per frame that Ryan has quoted. 1b. Garvin cannot take the average manufacturing cost in 2009 of \$30 per frame and mult iply it by 36,000 bicycle frames to determine the total cost of manufacturing 36,000 bicycle frames. The reason is that some o f the \$900,000 (or equivalent ly the \$30 cost per frame) are fixed costs and so me are variable costs. Without dist inguishing fixed fro m variable costs, Garvin cannot determine the cost of manufacturing 36,000 frames. For example, if all costs are fixed, the manufacturing costs of 36,000 frames will cont inue to be \$900,000. If, however, all costs are variable, the cost of manufacturing 36,000 frames would be \$30 ´ 36,000 = \$1,080,000. If so me costs are fixed and so me are variable, the cost of manufacturing 36,000 frames will be somewhere between \$900,000 and \$1,080,000. Some students could argue that another reason for not being able to determine the cost of manufacturing 36,000 bicycle frames is that not all costs are output unit­level costs. If so me costs are, for example, batch­level costs, more informat ion would be needed on the number o f 10­12 batches in which the 36,000 bicycle frames would be produced, in order to determine the cost of manufacturing 36,000 bicycle frames. 2. Expected cost to make = \$432,000 + \$15 ´ 36,000 36,000 bicycle frames = \$432,000 + \$540,000 = \$972,000 Purchasing bicycle frames fro m Ryan will cost \$28.50 ´ 36,000 = \$1,026,000. Hence, it will cost Garvin \$1,026,000 - \$972,000 = \$54,000 more to purchase the frames from Rya n rather than manufacture them in­house. 3. Garvin would need to consider several factors before being confident that the equat ion in requirement 2 accurately predicts the cost of manufacturing bicycle frames. a. Is the relat ionship between total manufacturing costs and quant it y of bicycle frames econom...
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