Cost Driver—Relevant Range
Project description
Cost Accounting with Managerial Emphasis:
Analysis 1: Cost DriverRelevant Range
Sugary Candies manufactures marshmallows in a fully automated process. The machine that produces marshmallows was purchased recently and can make 4,100 candies per month. The machine costs $9,000 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 $1,200 per month.
Sugary Candies currently makes and sells 3,800 marshmallows per month. Sugary Candies buys just enough materials each month to make the marshmallows it needs to sell.
Materials cost 30 cents per marshmallow. Next year, Sugary Candies 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.
Answer the following questions with conclusions:
1. What is Sugary Candies current annual relevant range of output?
2. What is Sugary Candies current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost?
3. What will Sugary Candies relevant range of output be next year? How, if at all, will total annual fixed and variable manufacturing costs change next year? Assume that Sugary Candies could buy, if it needs to, an identical machine at the same cost as the one it already owns.
Submission Requirements:
Submit your work in a Microsoft Excel file, showing step-by-step solutions to all calculations.
Evaluation Criteria:
Your submission will be evaluated against the following criteria: Did you accurately compute Sugary Candies current annual relevant range of output? Did you accurately compute the current annual fixed manufacturing cost within the relevant range and the annual variable manufacturing cost? Did you calculate what Sugary Candies relevant range of output will be next year? Did you explain how, if at all, will total annual fixed and variable manufacturing costs change next year?