King Frost produces and sells ice cream, gelato and sorbet. The following information is available: • Inspection of several invoices from ingredient suppliers indicate that the ingredients per litre costs on average $0.90. • The production machines were purchased six years ago for a total purchase price of $305,000. The machines are depreciated on a straight-line basis and have an estimated useful life of 12 years with a total scrap value of $21,800. • Wage records show that wages and on-costs for production employees are $0.002 per litre. • The sales team is paid a total of $5,000 per month and commission of 0.001 per litre sold. • Electricity costs associated with the factory are $5,000 per month plus an average of $0.01 per litre. • Payroll records show the engineers’ and factory supervisors’ salaries total $62,000 per month. • Monthly depreciation on factory building is $25,000. • The machines are maintained twice each month. The cost per maintenance is $3,000. Required: 1. Use the account-classification method to express the cost function for estimating the total monthly production cost. 2. Assume that 230,000 litres of product will be manufactured next month. Predict the production cost for next month.
King Frost produces and sells ice cream, gelato and sorbet. The following information is available:
• Inspection of several invoices from ingredient suppliers indicate that the ingredients per litre costs on average $0.90.
• The production machines were purchased six years ago for a total purchase price of $305,000. The machines are
• Wage records show that wages and on-costs for production employees are $0.002 per litre.
• The sales team is paid a total of $5,000 per month and commission of 0.001 per litre sold.
• Electricity costs associated with the factory are $5,000 per month plus an average of $0.01 per litre.
• Payroll records show the engineers’ and factory supervisors’ salaries total $62,000 per month.
• Monthly depreciation on factory building is $25,000.
• The machines are maintained twice each month. The cost per maintenance is $3,000.
Required:
1. Use the account-classification method to express the cost function for estimating the total monthly production cost.
2. Assume that 230,000 litres of product will be manufactured next month. Predict the production cost for next month.
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