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Fast Photo, Case Study: Write a concise but clear memo to Matt that will resolve his confusion

P 2-21 Fast Photo. This utilizes book Accounting for Decision Making and Control 5th edition by Jerold Zimmerman.

Fast Photo operates four film developing labs in upstate New York, the four labs are identical: They employ the same production technology, process the same mix of films, and buy raw materials from the same companies at the same prices. Wage rates are also the same at the four plants. In reviewing operating results for November, the newly hired assistant controller, Matt Paige, became quite confused over the numbers.
Upon further study, Matt learned that each plant had fixed overhead of $300,000. Matt remembered from his managerial accounting class that as volume increases average fixed cost per unit falls. Because Plant D had much lower average costs per roll than Plants A and B, Matt expected Plant D to be more profitable than Plants A and B. But the numbers show just the opposite.
Write a concise but clear memo to Matt that will resolve his confusion.

PLANT A PLANT B PLANT C PLANT D
Number of rolls processed 50,000 55,000 60,000 65,000
Revenue ($000s) $500 $550 $600 $650
Less:
Variable costs -195 -242 -298 -352
Fixed costs -300 -300 -300 -300
Profit (loss) $5 $8 $2 ($2)

Solution Preview

Accounting case study for Mid-term exam. P 2-21 Fast Photo. This utilizes book Accounting for Decision Making and Control 5th edition by Jerold Zimmerman.

Fast Photo operates four film developing labs in upstate New York, the four labs are identical: They employ the same production technology, process the same mix of films, and buy raw materials from the same companies at the same prices. Wage rates are also the same at the four plants. In reviewing operating results for November, the newly hired assistant controller, Matt Paige, became quite confused over the numbers.
Upon further study, Matt learned that each plant had fixed overhead of $300,000. Matt remembered from his managerial accounting class that as volume increases average fixed cost per unit falls. Because Plant D had much lower average costs per roll than Plants A and B, Matt expected Plant D to be more profitable than Plants A and B. But the numbers ...

Solution Summary

A memo for Matt to resolve his confusion is given.

$2.19