Bubbly soda spends $ 2 on direct materials, direct labor, and variable manufacturing overhead for every unit (12-pack of soda) it produces. fixed manufacturing overhead costs $ 7 million per year. the plant, which is currently operating at only 75 % of capacity, produced 25 million units this year. management plans to operate closer to full capacity next year, producing 35 million units. management does not anticipate any changes in the prices it pays for materials, labor, and manufacturing overhead.

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Business

Clara Hogan

31 March, 01:57

Bubbly soda spends $ 2 on direct materials, direct labor, and variable manufacturing overhead for every unit (12-pack of soda) it produces. fixed manufacturing overhead costs $ 7 million per year. the plant, which is currently operating at only 75 % of capacity, produced 25 million units this year. management plans to operate closer to full capacity next year, producing 35 million units. management does not anticipate any changes in the prices it pays for materials, labor, and manufacturing overhead.

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Moriah Walton · Answer 1

The cost of manufacturing at full capacity will be $217 million.

Explanation:

Direct material, labor, and variable manufacturing overheads will amount to $70 million each. ($35 million x $2) That makes a total of $210 million.

Note that these costs are not expected to change with the increase or decrease in production level as it is mentioned in the case.

Fixed manufacturing overheads will also remain the same as $7 million as fixed costs do not vary with the level of production.

$210 million + $7 million = $217 million

$217 will be the total cost of production.