Question

E2-22 (similar to) Question Help Ocean View 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. Ocean View has the following manufacturing costs EEB (Click the icon to view the manufacturing costs.) Requirements 1. 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 Ocean View currently produces 170 vehicles per month. 3. What is the total manufacturing cost of each vehicle if 95 vehicles are produced each month? 220 vehicles? Howd you explain the difference in the manufacturing cost per unit? Requirement 1. What is the variable manufacturing cost per vehicle? What is the fixed manufacturing cost per month? The variable cost per vehicle is S Data Table Plant management costs, $1,464,000 per year Cost of leasing equipment, $2,592,000 per year Workers' wages, $900 per Surfer vehicle produced Direct materials costs: Steel, S1,400 per Surfer; Tires, $110 per tire, each Surfer takes 5 tires (one spare) City license, which is charged monthly based on the number of tires used in production: 0-500 tires 501-1.000 tires more than 1,000 tires 50,000 70.000 $180,000 Print Done Enter any number in the edit fields and then click Check Answer.

Answer 1

Ans-1- Calculating the variable manufacturing cost per vehicle:-

Particulars	Per Unit ($)
Steel	1,400 per Surfer
Tires ($110 *5 tires)	550 per Surfer
Direct manufacturing labor	900 per Surfer
Total	$2,850 Per Surfer

Calculating the fixed manufacturing costs per month:-

Plant management costs per month ($1,464,000/ 12)	$122,000
Cost of leasing equipment ($2,592,000/12)	$216,000
City licence for 170* 5 surfers or 850 tires	$70,000
Total fixed manufacturing cost	$408,000

Computing the fixed costs per month (1 surfer takes 5 tires)

0 to 100 or surfers (0-500 tires) per month:-

= $122,000+$216,000+$50,000

=$ 388,000

101 to 200 surfers per month

=$122,000+$216,000+$70,000

=$408,000

More than 200 surfers per month

=$122,000+$216,000+$180,000

=$518,000

If 95 vehicles are produced every month then the total manufacturing cost is calculated as:-

Vehicles produced per month (1)	Tires produced per month (2)= (1)*5	Fixed cost per month (3)	Unit fixed cost per vehicle (4)= FC/ (1)	Unit variable cost per vehicle (5)	Unit Total cost per vehicle (6)= (4)+(5)
(a) 95	475	$388,000	$388,000/ 95 =$4,084	$2,850	$6,934
(b) 220	1,100	$518,000	$518,000/ 220 =$2,355	$2,850	$5,205

Hence, the unit cot for 95 vehicles produced per month is $6,934, but for 220 vehicles it is only $5,205. The difference in the cost due to the fixed cost increment of $130,000 being spread over an increment of more 125 vehicles. Hence, the fixed cost per unit is thus low.