Gumball Candies manufactures jaw- breaker candies in a fully automated process. The company recently purchased a machine that can produce 4,500 candies per month. The machine costs $ 8,000 and is depreciated using straight- line depreciation over 10 years assuming zero residual value. Rent for the factory space and warehouse and other fixed manufacturing overhead costs total $ 700 per month. Gumball currently makes and sells 3,100 jaw- breakers per month. Gumball buys just enough materials each month to make the jaw- breakers it needs to sell. Materials cost 40 cents per jawbreaker. Next year Gumball expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same.
1. What is Gumball’s current annual relevant range of output?
2. What is Gumball’s current annual fixed manufacturing cost within the relevant range? What is the annual variable manufacturing cost?
3. What will Gumball’s relevant range of output be next year? How, if at all, will total annual fixed and variable manufacturing costs change next year? Assume that Gumball could buy an identical machine at the same cost as the one it already has.

  • CreatedJanuary 15, 2015
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