An Organization Is Considering Three Process Configuration Options

question 18

Essay

An organization is considering three process configuration options. There are two different intermittent processes, as well as a repetitive focus. The smaller intermittent process has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger intermittent process has fixed costs of $12,000 per month and variable costs of $2 per unit. A repetitive focus plant has fixed costs of $50,000 and variable costs of $1 per unit.
a. If the company produced 20,000 units, what would be its cost under each of the three choices?
b. Which process offers the lowest cost to produce 40,000 units?
What is that cost?

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Definitions:

Unrealized Loss

A loss that results from holding onto an asset that has decreased in price, but has not yet been sold.

Tax Rate

The rate at which the government imposes taxes on the income or earnings of a person or a company.

Deferred Tax Asset

Represents future tax relief for a company, arising from deductible temporary differences, carryforward losses, or credits.

Accrued Product Warranty Costs

Costs that have been incurred but not yet paid for product warranties, recognized as liabilities on the balance sheet.