Question

Combined Motors specializes in producing one specialty vehicle. It is called Surfer and is styled to easily fit multiple surfboards in its back area and​ top-mounted storage racks.

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has the following manufacturing​ costs:

plant management costs : $1,860,000

Cost of leasing equipment $2,724,000

Workers wages $900 per surfer vehicle produced

Direct materials costs: Steel, $1700 per surfer tires, $140 per tire, each surfer takes 5 tires (one spare)

0-500 : $80,000

501-1000 tires: $95,000

more than 1,000: $230,000

What is the variable manufacturing cost per​ vehicle? What is the fixed manufacturing cost per​ month?

2.

Plot a graph for the variable manufacturing costs and a second for the fixed manufacturing costs per month. How does the concept of relevant range relate to your​ graphs? Explain.

3.

What is the total manufacturing cost of each vehicle if 95 vehicles are produced each​ month?

220 ​vehicles? How do you explain the difference in the manufacturing cost per​ unit?

Answer 1

1. What is the variable manufacturing cost per​ vehicle? What is the fixed manufacturing cost per​ month?

Variable manufacturing cost per vehicle:

i. Steel: $1,700

ii. Tires: $140 x 5 tires = $700

iii. Wages: $900

Total variable manufacturing cost per vehicle = ($1,700 + $700 + $900) = $3,300

Fixed manufacturing cost per month:

i. Plant management costs: ($1,860,000)/(12 months) = $155,000 per month

ii. Cost of lease equipment: ($2,724,000)/(12 months) = $227,000 per month

iii. City license: As the current production volume is not provided, this cannot be calculated.

Total fixed manufacturing cost per month = $382,000 + City license fees

2.

Relevant range for combined is influenced by City license, thus needs to be carefully evaluated when producing more number of vehicles (1000+)

3. a. 95 Vehicles

i. Variable manufacturing Cost: $3300 x 95 vehicles = $313,500

ii. Plant management costs: = $155,000 per month

iii. Cost of leash equipment: = $227,000 per month

iv. City license: (95 Vehicles x 5 tires) = 475 tires = $80,000 per month

1. Total manufacturing cost = $775,500

2. Number of units manufactured = 95 units a. $8,163 per unit

b. 220 Vehicles

i. Variable manufacturing Cost: $3,300 x 220 vehicles = $726,000

ii. Plant management costs: = $155,000 per month

iii. Cost of leash equipment: = $227,000 per month

iv. City license: (220 Vehicles x 5 tires) = 1100 tires = $230,000 per month

1. Total manufacturing cost = $133,8000

2. Number of units manufactured = 220 units a. $6,082 per unit

At higher number of units produced, fixed costs are spread over higher number of units, thus per unit cost is looking lower when 220 units are produced compared to 95 units.