Chapter 3 Solutions to Cornerstone Excersises

# Chapter 3 Solutions to Cornerstone Excersises - Chapter 3...

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Chapter 3 CORNERSTONE EXERCISES Cornerstone Exercise 3–15 1. The cost formula takes the following form: Total cost = Fixed cost + (Variable rate × Number of flash drives) The monthly fixed cost is \$18,000 (the combined \$15,000 cost of equipment depreciation and \$3,000 cost of advertising), as it does not vary according to the number of flash drives manufactured. The variable costs are materials and manufacturing overhead, as both do vary with the number of flash drives produced. Cost of materials per flash drive is drives flash 5,000 ounces 10,000 = 2 ounces per flash drive. Given that the material cost per drive = \$3 × 2 ounces per drive = \$6.00 per drive. Cost of manufacturing overhead per flash drive is 5,000 \$22,500 = \$4.50 per drive. Therefore, the variable rate per flash drive is \$6.00 + \$4.50 = \$10.50. The cost formula is: Total cost of flash drives = \$18,000 + (\$10.50 × Number of flash drives) 2. Expected fixed cost for next month is \$18,000. Expected variable cost for next month is \$10.50 × 6,000 flash drives = \$63,000.

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