E5.2 (LO 1), AP Shingle Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as follows. Output in Units 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 Rent Cost $ 5,000 5,000 8,000 8,000 8,000 8,000 8,000 8,000 10,000 10,000 10,000 Direct Materials $ 4,000 7,200 9,000 12,000 15,000 18,000 21,000 24,000 29,300 35,000 44,000 Instructions a. Diagram the anticipated behavior of each cost for outputs ranging from 1,000 to 11,000 units. b. Determine the relevant range of activity for this product based on the cost behavior of each input. c. Calculate the unit variable costs within the relevant range. d. Indicate the fixed cost within the relevant range. Determine fixed costs and unit variable costs using the high-low method and prepare graph.
E5.2 (LO 1), AP Shingle Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as follows. Output in Units 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 Rent Cost $ 5,000 5,000 8,000 8,000 8,000 8,000 8,000 8,000 10,000 10,000 10,000 Direct Materials $ 4,000 7,200 9,000 12,000 15,000 18,000 21,000 24,000 29,300 35,000 44,000 Instructions a. Diagram the anticipated behavior of each cost for outputs ranging from 1,000 to 11,000 units. b. Determine the relevant range of activity for this product based on the cost behavior of each input. c. Calculate the unit variable costs within the relevant range. d. Indicate the fixed cost within the relevant range. Determine fixed costs and unit variable costs using the high-low method and prepare graph.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer (a)
The direct materials cost will be variable and will increase as the output increases. Rent cost is fixed within the given range and does not change with the change in the output.
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