Chapter 5, Problem 5.2E

Shingle Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below.

Output in Units	Rent Expense	Direct Materials
1,000	$ 5,000	$ 4,000
2,000	5,000	7,200
3,000	8,000	9,000
4,000	8,000	12,000
5,000	8,000	15,000
6,000	8,000	18,000
7,000	8,000	21,000
8,000	8,000	24,000
9,000	10,000	29,300
10,000	10,000	35,000
11,000	10,000	44,000

Instructions

(a) Diagram the behavior of each cost for output ranging from 1,000 to 11,000 units.

(b) Determine the relevant range of activity for this product.

(c) Calculate the variable costs per unit within the relevant range.

(d) Indicate the fixed cost within the relevant range.