2 the inventoriable manufacturing cost per unit for

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2. The inventoriable (manufacturing) cost per unit for 5,000 flanges is $3.80 × 5,000 + $28,000 = $47,000 Average (unit) cost = $47,000 ÷ 5,000 units = $9.40 per unit. This is below Flora ’s selling price of $ 10 per flange. However, in order to make a profit, Gayle ’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 $9.40 + $2 = $11.40. Gayle ’s Glasswork s cannot sell below Flora ’s price o f $10 and still make a profit on the flanges. Alternatively, At Flora ’s price of $ 10 per flange: Revenue $10 × 5,000 = $50,000 Variable costs $3.80 × 5,000 = 19,000 Fixed costs 38,000 Operating loss $ (7,000) Gayle ’s Glassworks cannot sell below $ 10 per flange and make a profit. At Flora ’s price of $ 10 per flange, the company has an operating loss of $7,000.
3. If Gayle ’s Glassworks produces 10,000 units, then total inventoriable cost will be: Variable cost ($3.80 × 10,000) + fixed manufacturing costs, $28,000 = total manufacturing costs, $66,000. Average (unit) inventoriable (manufacturing) cost will be $66,000 ÷ 10,000 units = $6.60 per flange Unit total cost including both inventoriable and period costs will be ($66,000 + $10,000) ÷ 10,000 = $7.60 per flange, and Gayle ’s Glassworks will be able to sell the flanges for less than Flora ’s price of $10 per flange and still make a profit. Alternatively, At Flora ’s price of $10 per flange: Revenue $10 × 10,000 = $100,000 Variable costs $3.80 × 10,000 = 38,000 Fixed costs 38,000 Operating income $ 24,000 Gayle ’s Glassworks can sell at a price below $ 10 per flange and still make a profit. The company earns operating income of $24,000 at a price of $10 per flange. The company will earn operating income as long as the price exceeds $7.60 per flange.
2-24 2-33 Inventoriable costs versus period costs. Each of the following cost items pertains to one of these companies: Best Buy (a merchandising-sector company), KitchenAid (a manufacturing- sector company), and HughesNet (a service-sector company): a. Cost of phones and computers available for sale in Best Buy’s electronics department b. Electricity used to provide lighting for assembly-line workers at a KitchenAid manufacturing plant c. Depreciation on HughesNet satellite equipment used to provide its services d. Electricity used to provide lighting for Best Buy’s store aisles e. Wages for personnel responsible for quality testing of the KitchenAid products during the assembly process f. Salaries of Best Buy’s marketing personnel planning local -newspaper advertising campaigns g. Perrier mineral water purchased by HughesNet for consumption by its software engineers h. Salaries of HughesNet area sales managers i. Depreciation on vehicles used to transport KitchenAid products to retail stores

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