Shingle Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below.
|
Output in Units
|
Rent Expense
|
Direct Materials
|
|
1,000
|
$5,000
|
$4,000
|
|
2,000
|
5,000
|
7,200
|
|
3,000
|
8,000
|
9,000
|
|
4,000
|
8,000
|
12,000
|
|
5,000
|
8,000
|
15,000
|
|
6,000
|
8,000
|
18,000
|
|
7,000
|
8,000
|
21,000
|
|
8,000
|
8,000
|
24,000
|
|
9,000
|
10,000
|
29,300
|
|
10,000
|
10,000
|
35,000
|
|
11,000
|
10,000
|
44,000
|
Instructions
(a) Diagram the behavior of each cost for output ranging from 1,000 to 11,000 units.
(b) Determine the relevant range of activity for this product.
(c) Calculate the variable costs per unit within the relevant range.
(d) Indicate the fixed cost within the relevant range.