Fizzy Cola spends $3.50on direct materials, direct labour, and variable manufacturing overhead for every unit (12-pack of soda) it produces. Fixed manufacturing overhead costs$4million per year. The plant, which is currently operating at only75%of capacity, produced 20 million units this year. Management plans to operate closer to full capacity next year, producing 25 million units. Management does not anticipate any changes in the prices it pays for materials, labour, and manufacturing overhead

Requirement:

a. What is the current total product cost (for the 20 million units), including fixed and variable costs?

b. What is the current average product cost per unit?

c. What is the current fixed cost per unit?

d. What is the forecasted total product cost next year (for the 25million units)?

e. What is the forecasted average product cost next year?

f. What is the forecasted fixed cost per unit?

g. Why does the average product cost decrease as production increases?

What is the current total product cost (for the

20

million units), including fixed and variable costs?Determine the formula, then calculate the current total product cost.

	Total fixed costs	+	Total variable costs	=	Total product costs
	4	million	+		million	=		million