Paradise Pottery had the following costs in May when production is 800 ceramic p
ID: 1251257 • Letter: P
Question
Paradise Pottery had the following costs in May when production is 800 ceramic pots: materials, $8,700; labor (variable), $2,900; depreciation, $1,100; rent, $900; and other fixed costs, $1,500. The variable cost per unit and fixed cost per unit are, respectively, (Points : 2)
$3.63 and $15.25.
$17.00 and $1.88.
$14.50 and $4.38.
$15.88 and $3.00.
2. Shula’s 347 Grill has budgeted the following costs for a month in which 1,600 steak dinners will be produced and sold: Materials, $4,080; hourly labor (variable), $5,200; rent (fixed), $1,700; depreciation, $800; and other fixed costs, $600. Each steak dinner sells for $14.00 each. How much would Shula’s profit increase if 10 more dinners were sold?
(Points : 2)
$140.00
$62.60
$58.00
$82.00
3. The value chain includes the company and its suppliers and customers. (Points : 2)
True
False
4. Variable cost per unit is budgeted to be $6.00 and fixed cost per unit is budgeted to be $3.00 in a period when 5,000 units are produced. If production is actually 4,500 units, what is the expected total cost of the units produced? (Points : 2)
$45,000
$40,500
$43,500
$42,000
5. A company purchases machinery costing $50,000 in October of 2006. Five years later they discover that a better, more efficient machine they could purchase to replace the existing machine. The new machine will cost $90,000 and the company has determined that they would be able to sell the original machine for $30,000. In making the decision about buying the new machine, how much are total sunk costs? (Points : 2)
$60,000
$40,000
$50,000
$10,000
Explanation / Answer
Materials = $8,700
Labor (variable) = $2,900
Depreciation = $1,100
Rent = $900
Other fixed cost = $1,500
Total Variable Cost = [Materials + Labor]
Total Variable Cost = [$8,700 + $2,900]
Total Variable Cost = $11,600
Variable Cost per unit = [$11,600 / 800 ceramic pots]
Variable Cost per unit = $14.50
Total Fixed Cost = [$1,100 + $900 + $1,500]
Total Fixed Cost = [$3,500 / 800 ceramic pots]
Total Fixed Cost = $4.38
Hence, the correct answer is $14.50 and $4.38
Materials = $4,080
Hourly labor (variable) = $5,200
Rent (Fixed) = $1,700
Depreciation = $800
Other Fixed Costs = $600
Steak dinner selling price = $14.00 each
Calculating Profit:
Contribution per dinner = [Selling price per dinner – Variable Cost per dinner]
Selling price per dinner = $14
Variable Cost per dinner = [($4,080 + $5,200) / 1,600]
Variable Cost per dinner = $5.80
Contribution per dinner = [$14 - $5.80]
Contribution per dinner = $8.20 per dinner
Contribution (or) Profit = [$8.20 * 1,600]
Contribution (or) Profit = $13,120
Profit increase if 10 more dinners were sold:
Total dinners sold = [1,600 + 10]
Total dinners sold = 1,610
Contribution (or) Profit = [$8.20 * 1,610]
Contribution (or) Profit = $13,202
Contribution (or) Profit increase = $82
Hence, the correct answer is $82
The value chain includes the company and its suppliers and customers
Thus, the correct answer is True
Budgeted Variable Cost per unit = $6
Budgeted Fixed Cost per unit = $3
Number of units produced = 5,000 units
Number of units actually produced = 4,500
Total Cost of the units produced = [Fixed Cost + Variable Cost]
Total Fixed Cost = [4,500 * $3]
Total Fixed Cost = $13,500
Total Variable Cost = [4,500 * $6]
Total Variable Cost = $27,000
Total Fixed Cost = [$13,500 + $27,000]
Total Fixed Cost = $40,500
Hence, the correct answer is $40,500
Sunk cost is the cost that has been incurred and cannot be reversed.
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