Question

Thompson Motors specializes in producing one specialty vehicle. It is called Turner and is styled to easily fit multiple surfboards in its back area and top-mounted storage racks. Thompson has the following manufacturing costs:

Plant management costs, $1,200,000 per year

Cost of leasing equipment, $1,300,000 per year

Workers’ wages, $700 per Surfer vehicle produced

Direct materials costs: Steel, $1,500 per Turner, Tires, $125 per tire, each Turner takes 5 tires (one spare).

City license, which is charged monthly based on the number of tires used in production:

0 – 500 tires                      $50,000

501 – 1,000 tires              $74,500

More than 1,000 tires    $200,000

Thompson currently produces 110 vehicles per month.

1. What is the variable manufacturing cost per vehicle?
2. What is the fixed manufacturing cost per month?
3. What is the total manufacturing cost of each vehicle if 100 vehicles are produced each month?
4. What is the increase in total manufacturing cost if 225 vehicle are produced each month?

Answer 1

In this question Cost of leasing equipment $1300000 per year

(a)What is the variable manufacturing cost per vehicle?

Variable manufacturing cost per vehicle:

i. Steel: $1500

ii. Tires: $125 x 5 tires = $625

iii. Wages: $700

Total variable manufacturing cost per vehicle = ($1500 + $625 +$700) = $2825

(b)What is the fixed manufacturing cost per month?

i. Plant management costs: ($1200000)/(12 months) = $100000 per month

ii. Cost of leash equipment: ($1300000)/(12 months) = $108333 per month

iii. City license: (110 Vehicles x 5 tires) = 550 tires = $74500 per month

Total fixed manufacturing cost per month = $282833

(c)What is the total manufacturing cost of each vehicle if 100 vehicles are produced each month?

i. Variable manufacturing Cost: $2825 x 100 vehicles = $282500

ii. Plant management costs: ($1200000)/(12 months) = $100000 per month

iii. Cost of leash equipment: ($1300000)/(12 months) = $108333 per month

iv. City license: (100 Vehicles x 5 tires) = 500 tires = $50000 per month

Total manufacturing cost = $540833

Number of units manufactured = 100 units

($540833/100) = $5408 per unit

(d)What is the increase in total manufacturing cost if 225 vehicle are produced each month?

i. Variable manufacturing Cost: $2825 x 225 vehicles = $635625

ii. Plant management costs: ($1200000)/(12 months) = $100000 per month

iii. Cost of leash equipment: ($1300000)/(12 months) = $108333 per month

iv. City license: (225 Vehicles x 5 tires) = 1125 tires = $200000 per month

Total manufacturing cost = $1043958

Increase in Manufacturing cost = $1043958 - $540833 = $503125

If Cost of leasing equipment $1800000 per year

Solution

(a)What is the variable manufacturing cost per vehicle?

Variable manufacturing cost per vehicle:

i. Steel: $1500

ii. Tires: $125 x 5 tires = $625

iii. Wages: $700

Total variable manufacturing cost per vehicle = ($1500 + $625 +$700) = $2825

(b)What is the fixed manufacturing cost per month?

i. Plant management costs: ($1200000)/(12 months) = $100000 per month

ii. Cost of leash equipment: ($1800000)/(12 months) = $150000 per month

iii. City license: (110 Vehicles x 5 tires) = 550 tires = $74500 per month

Total fixed manufacturing cost per month = $324500

(c)What is the total manufacturing cost of each vehicle if 100 vehicles are produced each month?

i. Variable manufacturing Cost: $2825 x 100 vehicles = $282500

ii. Plant management costs: ($1200000)/(12 months) = $100000 per month

iii. Cost of leash equipment: ($1800000)/(12 months) = $150000 per month

iv. City license: (100 Vehicles x 5 tires) = 500 tires = $50000 per month

Total manufacturing cost = $582500

Number of units manufactured = 100 units

($540833/100) = $5825 per unit

(d)What is the increase in total manufacturing cost if 225 vehicle are produced each month?

i. Variable manufacturing Cost: $2825 x 225 vehicles = $635625

ii. Plant management costs: ($1200000)/(12 months) = $100000 per month

iii. Cost of leash equipment: ($1800000)/(12 months) = $150000 per month

iv. City license: (225 Vehicles x 5 tires) = 1125 tires = $200000 per month

Total manufacturing cost = $1085625

Increase in Manufacturing cost = $1085625 - $582500 = $503125