Exercise 18-2 (Part Level Submission) Shingle Enterprises is considering manufac

Question

Exercise 18-2 (Part Level Submission) 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 Rent Direct in Units Expense Materials 1,000 5,060 4,048 5,060 7.286 8,096 8,400 8,096 11,200 8,096 14,000 8,096 16,800 8,096 19,600 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 10,120 35,420 11,000 10,120 44,528 8,096 22,400 10,120 29,652 ? (b) E] Determine the relevant range of activity for this product. The relevant range of activity for this product L 3,000-8,000 Your answer is correct. units

Explanation / Answer

Exercise-18-2 Req B: Relevant range is 3000 -8000 units As the fixed cost shows the same cost behaviour within this range. And also the variable cost i.e. material also inccreases in direct proportion to units produced within this range. Req C: Variable cost per unit: Total Direct material cost at 3000 units 8400 Divide: Number of Units 3000 Variable cost per unit: 2.80 Exercise-18-3 At high activity,   Machine hours = 730 hours Total cost = $ 5470 At low activity, machine hours = 330 hours Total cost = $ 2880 Variable cost per MH: Change in Cost / Change in Machine houors = (5470-2880) /(730-330) = $ 6.475 per Mh

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