True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret

Question

True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high - tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3 - year life and no salvage value. True Flight uses straight - line depreciation. During the year, 25,000 shafts were produced, and the company was operating at full capacity. $700,000 of wire was used during the year. (a) Is machinery depreciation fixed or variable? Is wire fixed or variable?

Explanation / Answer

a)

Depreciation is fixed per annum. That is

$3,000,000/3 =1,000,000 per annum.

It is variable per unit, because if the prodution increases the cost per unit will decrease and vice versa.Therefore it is fixed.

Wire in fixed per unit. That is

700,000/25,000 = $28 per unit.

It is variable to the prodution. Because if the production increase the wire used in the production also increases and vice versa.Therefore it is variable.

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