Test:Mid-Term Exam

Question 6

This Test: 55 pts possible

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Gloria's

Glassworks makes glass flanges for scientific use. Materials cost

$2

per flange, and the glass blowers are paid a wage rate of

$24

per hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for flanges are

$21,000

per period. Period (non-manufacturing) costs associated with flanges are

$10,000

per period, and are fixed.

Requirements

1.	Fred's Flasks, sells flanges for $8.00 each. Can Gloria sell below Fred's price and still make a profit on the flanges? Assume Gloria produces and sells 5,000 flanges this period.
2.	How would your answer to requirement 1 differ if Gloria's Glassworks made and sold 11,000 flanges this period? Why? What does this indicate about the use of unit cost in decision making?

Requirement 1. Fred's Flasks, sells flanges for

$8.00

each. Can

Gloria

sell below Fred's price and still make a profit on the flanges? Assume

Gloria

produces and sells

5,000

flanges this period.Begin by determining the formula used to calculate the total cost per unit. Choose the correct answer below.

A.

(Total fixed

costs+Total

variable

costs)Materials

cost per

unit=Total

cost per unit

B.

(Materials cost per

unit+Wage

rate per

hour)Units

produced and

sold=Total

cost per unit

C.

(Total fixed

costs+Total

variable

costs)Wage

rate per

hour=Total

cost per unit

D.

(Total fixed

costs+Total

variable

costs)Units

produced and

sold=Total

cost per unit

Complete the sentence below. (Round the total cost per unit to two decimal places.)The total cost per unit to manufacture

5,000

flanges is

$nothing,

therefore, they

can

can not

make a profit when compared to Fred's Flasks selling price of

$8.00

each.Requirement 2. How would your answer to requirement 1 differ if

Gloria's

Glassworks made and sold

11,000

flanges this period? Why? What does this indicate about the use of unit cost in decision making? (Round the total cost per unit to two decimal places.)The total cost per unit to manufacture 11,000 langes would be $ nothing. With production and sales at this level, the company

could or could not ?

potentially make a profit if the selling price is below

$8.00

each. Managers must be cautious using unit costs for decision making because

total fixed costs / total variable costs ?

do not change at the unit level.