King Frost produces and sells ice cream, gelato and sorbet. The following information is available: • The production machines were purchased four years ago for a total purchase price of $268,000. The machines are depreciated on a straight-line basis and have an estimated useful life of 14 years with a total scrap value of $16,000. • Wage records show that wages and on-costs for production employees are $0.004 per litre. • The machines are maintained four times each month. The cost per maintenance is $1,500. • Inspection of several invoices from ingredient suppliers indicate that the ingredients per litre costs on average $0.85. • Monthly depreciation on buildings totals $35,000, of which $22,000 relates to the factory and the remainder relates to the retail store. • Payroll records show the engineers’ and factory supervisors’ salaries total $58,000 per month. • Electricity costs associated with the factory are $6,000 per month plus an average of $0.02 per litre. Required: 1. Use the account-classification method to express the cost function for estimating the total monthly production cost. 2. Assume that 190,000 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:
• The production machines were purchased four years ago for a total purchase price of $268,000. The machines are
• Wage records show that wages and on-costs for production employees are $0.004 per litre.
• The machines are maintained four times each month. The cost per maintenance is $1,500.
• Inspection of several invoices from ingredient suppliers indicate that the ingredients per litre costs on average $0.85.
• Monthly depreciation on buildings totals $35,000, of which $22,000 relates to the factory and the remainder relates to the retail store.
• Payroll records show the engineers’ and factory supervisors’ salaries total $58,000 per month.
• Electricity costs associated with the factory are $6,000 per month plus an average of $0.02 per litre.
Required:
1. Use the account-classification method to express the cost function for estimating the total monthly production cost.
2. Assume that 190,000 litres of product will be manufactured next month. Predict the production cost for next month.
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