Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 84,000 units. The variable cost of the sensor is $194 per unit, and the fixed costs of the plant are $13,860,000 annually. Current annu demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location. Required: a. What cost per sensor should the cost system report to facilitate management decision making? b. What is the cost of excess capacity? c. What cost per sensor would the cost system report if the smallest manufacturing plant that could be built was able to produce 84,000 sensors? What would be the cost of excess capacity?

Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 84,000 units. The variable cost of the sensor is $194 per unit, and the fixed costs of the plant are $13,860,000 annually. Current annu demand is 55,000 sensors. Middle Industries bought the plant because it was close to its other manufacturing facilities and was available for sale when they were searching for a location. Required: a. What cost per sensor should the cost system report to facilitate management decision making? b. What is the cost of excess capacity? c. What cost per sensor would the cost system report if the smallest manufacturing plant that could be built was able to produce 84,000 sensors? What would be the cost of excess capacity?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 31P: Jonfran Company manufactures three different models of paper shredders including the waste...

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