Variable costs, fixed costs, relevant range. Yumball Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 4,000 per month. The machine costs $6,000 and is depreciated using straight line depreciation over ten years assuming zero residual value. Rent for the factory space and warehouse, and other fixed manufacturing overhead costs total $1,000 per month.

Yumball currently makes and sells 3,000 jaw-breakers per month. Yumball buys just enough materials each month to make the jaw-breakers it needs to sell. Materials cost 10 cents per jawbreaker. Next year Yumball 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 Yumball’s current annual relevant range of output?

2. What is Yumball’s current annual fixed manufacturing cost within the relevant range? What is the variable manufacturing cost?

3. What will Yumball’s relevant range of output be next year? How if at all, will fixed and variable manufacturing costs change next year?