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Calculate the inventoriable cost per unit

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Reference no: EM133107940

Question - Green Industries Ltd. manufactures machine parts. The Company has available capacity to run three shifts per day, 300 days a year. With allowance for machine maintenance, statutory holidays and any unforeseen closures, the company can run 260 days a year, with three, eighthour shifts. One shift can produce 25 units. Based on customer demand, the five-year forecast is set to 18,000 units a year. Recently customer demand has decreased. The company is only expecting to sell 6,600 units for the upcoming year.

Variable costs are $18 per unit; Budgeted fixed costs are $350,000. The average selling price is $35 per unit.

Required -

a) Calculate the inventoriable cost per unit using each level of capacity using both fixed and variable costs.

b) Based on the expected customer demand for the upcoming year, what price per unit should the company charge customers? Will customers pay this price?

c) Using the answer from part B, explain the issues the company will face if costs and the selling price are based on Master Budget capacity for the upcoming year.

Reference no: EM133107940

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