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Creating and Using a Cost Formula

Kleenaire Motors manufactures hybrid sports utility vehicles (SUVs). Kleenaire incurs monthly depreciation costs of $10,000,000 on its highly automated plant machinery and warehousing facility. Also, each SUV requires materials and manufacturing overhead resources. On average, the company uses 75,000,000 pounds of steel to manufacture 50,000 SUVs per month. Each pound of steel costs $0.20. In addition, manufacturing overhead resources are driven by machine hours. On average, the company incurs $200,000,000 of variable manufacturing overhead resources to produce 50,000 SUVs per month.

Required:

1. Create a formula for the monthly cost of SUVs for Kleenaire.

Total Cost of SUVs =

Fixed costVariable costFixed cost

+ (

Manufacturing overheadMaterialsVariable rateVariable rate

x Number of SUVs)

Total Cost of SUVs = $fill in the blank 3 + ($fill in the blank 4 Number of SUVs)

2. If Kleenaire expects to manufacture 55,000 SUVs next month, what is the expected fixed cost (assuming that 55,000 units is within the companys current relevant range)?

$fill in the blank 5

What is the total variable cost (assuming that 55,000 units is within the companys current relevant range)?

$fill in the blank 6

What is the total manufacturing cost (i.e., both fixed and variable) (assuming that 55,000 units is within the companys current relevant range)?

$fill in the blank 7