Chapter 2, Problem 2.27E

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

Plant management costs, $1,992,000 per year

Cost of leasing equipment, $1,932,000 per year

Workers’ wages, $800 per Surfer vehicle produced

Direct materials costs: Steel, $1,400 per Surfer; Tires, $150 per tire, each Surfer takes 5 tires (one spare).

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

0–500 tires	$ 40,040
501–1,000 tires	$ 65,000
more than 1,000 tires	$249,870

Consolidated currently produces 170 vehicles per month.

1. 1. What is the variable manufacturing cost per vehicle? What is the fixed manufacturing cost per month?

Required

1. 2. Plot a graph for the variable manufacturing costs and a second for the fixed manufacturing costs per month. How does the concept of relevant range relate to your graphs? Explain.
2. 3. What is the total manufacturing cost of each vehicle if 80 vehicles are produced each month? 205 vehicles? How do you explain the difference in the manufacturing cost per unit?