Reference no: EM132661121

Question - Variable costs, fixed costs and relevant range

Sweetum Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 4100 per month. The machine costs $9000 and is depreciated using straight line depreciation over 10 years assuming zero residual value. Rent for the factory space and warehouse, and other fixed manufactured overhead costs total 1200 per month.

Sweetum currently makes and sells 3800 jaw breakers per month. Sweetum buys just enough materials each month to make jaw breakers it needs to sell. Materials cost 30 cents per jawbreaker.'

Next year Sweetum expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same.

1. What is Sweetum's current annual relevant range of output?

2. What us Sweetum's current annual fixef manufacturing cost within the relevant range? What is the annual variable manufacturing cost?

3. What will Sweetum's relevant range of output be next year? How if at all, will total annual fixed and variable manufacturing costs change next year? Assume that if it needs to Sweetum could buy an identical machine at the same cost as the one it already has.