Question

Gumball Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 4,600 per month. The machine costs $5,500 and is depreciated using straight line depreciation over 10 years assuming zero residual value. Rent for the factory space and warehouse and other fixed manufacturing overhead costs total $1,100 per month. Gumball currently makes and sells 3,100 jaw-breakers per month. Gumball buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 30 cents per jaw-breaker. Next year Gumball expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same. Read the requirements Requirement 1. What is Gumball's current annual relevant range of output? Gumball's current annual relevant range of output is Requirement 2. What is Gumball's current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost? Gumball's current annual fixed manufacturing costs = ol Gumball's current annual variable manufacturing costs = Requirement 3. What will Gumball's relevant range of output be next year? How if at all, will total annual fixed and variable manufacturing costs change next year? Assume that if it needs to Gumball could buy an identical machine at the same cost as the one it already has. If the demand increases by 100%, annual production will have to increase to this amount of jaw-breakers next year to meet the expected increase Gumball has two options: (a) or (b) V and the annual fixed costs will Should the company decide to go with option (b), the variable cost per unit produced will If the company decides to go with option (a), the variable cost per unit produced will and the annual fixed costs will Х Requirements 1. What is Gumball's current annual relevant range of output? 2. What is Gumball's current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost? 3. What will Gumball's relevant range of output be next year? How if at all, will total annual fixed and variable manufacturing costs change next year? Assume that if it needs to Gumball could buy an identical machine at the same cost as the one it already has. Print Done Choose from any list or enter any number in the input fields and then continue to the next question

Answer 1

Requirement 1. jaw-breaker candies machine can make per month = 4,600 Therefore, jaw-breaker candies machine can make annually = 4,600 * 12 = 55,200 Current annual relevenat range of output is 0 to 55,200 jaw-breaker candies. Requirement 2. Other fixed manufacturing overhead costs per month = $1,100 Annual other fixed manufacturing overhead cots = 1,100 * 12 = $13,200 Depreciation expense every year = (Cost - residual value)/Useful life = (5,500 - 0)/10 = $550 Gumball's current annual fixed manufacturing costs = 13,200 + 550 = $13,750 jaw-breaker candies produced and sold per month = 3,100 Units of jaw-breaker candies produced and sold annually = 3,100 * 12 = 37,200 Material costs per jaw-breaker = $0.30 Gumball's current annual variable manufacturing costs = 37,200 * 0.30 = $11,160

Requirement 3. Demand increases by 100% Annual production of jaw-breaker candies next year to meet the increased demand = 37,200 + (37,200 * 100%) = 74,400 With single machine, maximum jaw-breaker candies that can be produced annually = 55,200 Option (a) - Gumball Candies may opt to produce the 55,200 jaw-breaker candies with the help of single machine and leave the remaining demand of 19,200 (74,400 - 55,200) jaw-breaker candies unsatisfied. Option (b) - Gumball Candies may purchase one additional machine, then the annual relevant range of output next year will be between 0 to 110,400 (55,200 * 2) jaw-breaker candies and it can meet the increased demand of 74,400 jaw-breaker candies. If company decides to go with option (a), variable costs per unit produced will be $0.30 (i.e it will remain the same) annual fixed costs will be $13,750 (i.e it will also remain the same) If company decides to go with option (b), variable costs per unit produced will be $0.27(0.30 -0.30 * 10%) because of 10% discount. annual fixed costs will be $14,300 (13,750 + 550) because of additional depreciation of second machine.