Fixed and variable cost calculations True Flight Golf manufacturers a popular sh

Question

Fixed and variable cost calculations True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high-tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3-year life and no salvage value. True Flight uses straight-line depreciation. During the year, 25,000 shafts were produced, and the company was operating at full capacity. $700,000 of wire was used during the year. (a) Is machinery depreciation fixed or variable? Is wire fixed or variable?

Explanation / Answer

The machinery depreciation is the fixed cost. Irrespective of how many shafts are produced the cost will be depreciated for every year.

The wire cost if variable as it is based on no of the shafts produced. As per question each shaft require $3 of wire.

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