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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- Spring '10
- Cost Accounting, representative, cost funct ion, Bob Jones