Problem:
An accounting magazine sells 50,000 copies a month. The total variable costs are $40,000 and fixed costs are $20,000. An additional one-off storage cost of $2,000 is incurred if production exceeds 55,000 units.
A management accountant then makes suggestions about which production run to use.
On behalf of the management accountant, forecast the following costs about which production run to use. This is based upon a production run of (a) 52,000 units and (b) 57,000 units:
Total variable costs
Variable cost per unit
Total fixed cost
Fixed cost per unit
Budget Forecast A Forecast B
Production
50,000
52,000
57,000
Total variable costs
Variable cost per unit
Total fixed cost
Fixed cost per unit