Compute the variable cost, Cost Accounting

A soft drink maker wants to expand into a neighboring country.  They want the product bottled in that country to avoid political issues and to enhance the local image of the product.  They have identified two options for the expansion.  The first is to build a highly automated plant.  The economies of scale would allow them to produce a can of soda for $0.04 and the distribution costs would be $0.02 per can.  This facility would cost $1 million per year in fixed costs.  The second option would be to build a semi-automated plant that would cost $650,000 per year in fixed costs.  However, the cost to produce a can would be $0.07 and the distribution cost would be $0.04 per can.

a) Over what range of product would each plant be preferred?

b)  Suppose the company believes that the demand would be approximately 6,000,000 cans per year.  Suppose all costs except the variable cost (sum of the production and distribution costs) for the highly automated process are certain and can not change.  What would the variable cost (the sum of the production and distribution cost) per can for the highly automated process have to be so that the soft drinker maker is indifferent between the two types of plants?

c)  Now suppose each alternative has a different capacity.  The total estimated demand for the year is 5,000,000 if the company sells each can for $0.32.  However, only the highly automated process can produce and distribute this amount.  If the semi-automated process is used, the company would only be able to produce and distribute 4,200,000 cans annually.  To offset the lower volume, the company will raise the price of each can to $0.35.  It will be able to sell all it produces at this price.  Using all of the information presented in the problem, which process should it use?  Why?

Posted Date: 2/18/2013 12:37:49 AM | Location : United States







Related Discussions:- Compute the variable cost, Assignment Help, Ask Question on Compute the variable cost, Get Answer, Expert's Help, Compute the variable cost Discussions

Write discussion on Compute the variable cost
Your posts are moderated
Related Questions
Learning Objective: After completing the project, the student will have gained familiarity, understanding and mastery of programming a realistic but simple application in Assembly

Variable Overhead Variance This is the dissimilarity between the variable overheads absorbed and the actual variable overheads warned. Therefore it can be described as the und

Park & Morgan, a law firm, is considering opening a legal clinic for midde- and low income clients. The clinic would bill at a rate if $18 per hour. It would employ law students as


You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After Initial examination of the proposal, you note that there are 500 material items, but y

The follow data relates to year 20XX for Plano Manufacturing Company: Units produced - 2,000 Units sold - 1,800 Selling price - $200 / per unit Direct material costs - $80,000 Dire

A. Material Sampling -Analyzing Direct Material Costs You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After Initial examination of the pro

On January 1, 2012, a machine was purchased for $197,100. The machine has an estimated salvage value of $13,140 and an estimated useful life of 5 years. The machine can operate for

Absorption vs. Variable Costing Varilux manufactures a single product and sells it for $10 per unit. At the beginning of the year there were 1,000 units in inventory. Upon further

Prime Essentials Limited is a small private corporation. The owner plans to approach the bank for an additional loan or a line of credit to facilitate expansion. The company bookke