Managerial Accounting:
Determine the relevant range of activity for this product. Shingle Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below.
| Output in Units |
Rent Expense |
Direct Materials |
| 1,000 |
7,100 |
5,680 |
| 2,000 |
7,100 |
10,224 |
| 3,000 |
11,360 |
6,000 |
| 4,000 |
11,360 |
8,000 |
| 5,000 |
11,360 |
10,000 |
| 6,000 |
11,360 |
12,000 |
| 7,000 |
11,360 |
14,000 |
| 8,000 |
11,360 |
16,000 |
| 9,000 |
14,200 |
41,606 |
| 10,000 |
14,200 |
49,700 |
| 11,000 |
14,200 |
62,480
|
Determine the relevant range of activity for this product.
The relevant range of activity for this product is between 3,000-8,000 units. I am having a difficult time understanding the calculation for the following:
1. Calculate the variable cost per unit within the relevant range.
2. Indicate the fixed cost within the relevant range.