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Relevant Cost Decisions

The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2003 and the expected costs in 2004:

Current Costs Expected Costs
in 2003 in 2004

Variable
manufacturing costs:

Direct material cost
per CMCB_____________________$180__________$170_______

Direct manufacturing labor
cost per CMCB_________________50____________45________

Variable manufacturing cost
per batch for setups,
material handling, and
quality control_____________1,600_________1,500_______

Fixed manufacturing cost:

Fixed manufacturing overhead
costs that can be avoided if
CMCBs are not made__________320,000______320,000______

Fixed manufacturing overhead
costs of plant depreciation,
insurance, and administration
that cannot be avoided even
if CMCBs are not made_______800,000______800,000______

Svenson manufactured 8,000 CMCBs in 2003 in 40 batches of 200 each. In 2004, Svenson anticipates need
ing 10,000 CMCBs. The CMCBs would be needed in 80 batches of 125 each.

The Minton Corporation has approached Svenson about supplying CMCBs to Svenson in 2004 at $300 per
CMCB on whatever delivery schedule Svenson wants.

Calculate the total expected manufacturing cost per unit of making CMCBs in 2004.

Solution Preview

Total Expected Manufacturing Cost per unit of CMCB in 2004:
<br>
<br>Direct material cost
<br>per CMCB + Direct manufacturing
<br>labor cost per CMCB ...

$2.19