Question

Kleenaire Motors manufactures hybrid sports utility vehicles (SUVs)\mathrm{(SUVs)}. Kleenaire incurs monthly depreciation costs of $10,000,000\$ 10,000,000 on its highly automated plant machinery and warehousing facility. Also, each SUV\mathrm{SUV} requires materials and manufacturing overhead resources. On average, the company uses 75,000,00075,000,000 pounds of steel to manufacture 50,000SUVs50,000 \mathrm{SUVs} per month. Each pound of steel costs $0.20\$ 0.20. In addition, manufacturing overhead resources are driven by machine hours. On average, the company incurs $200,000,000\$ 200,000,000 of variable manufacturing overhead resources to produce 50,000SUVs50,000 \mathrm{SUVs} per month.

Required:

  1. Create a formula for the monthly cost of SUVs\mathrm{SUVs} for Kleenaire.

  2. If Kleenaire expects to manufacture 55,000SUVs55,000 \mathrm {SUVs} next month, what is the expected fixed cost (assuming that 55,00055,000 units is within the company's current relevant range)? Total variable cost? Total manufacturing cost (i.e., both fixed and variable)?

Solution

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Answered 8 months ago
Answered 8 months ago
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This exercise requires us to develop a cost formula for the monthly cost of Kleenaire Motors company.

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