Table 11-9 -Refer to Table 11-9. Clock It to Me Manufactures Clock

question 19

Essay

Table 11-9

-Refer to Table 11-9. Clock It To Me manufactures clock radios. The table above shows estimates of fixed cost per period and average variable cost for three possible plant sizes.
a. You are employed as the company's cost accountant and have been asked to prepare cost estimates for various output levels for each of the three possible plant sizes. Record your calculations in the table below.
Average Cost of Production
b. For each of the three output levels, which plant size will generate the lowest average total cost of production?
c. Suppose the firm currently sells 8,000 clock radios per period (using the optimal plant size for this output level). Now, however, it has just secured a long-term contract to supply 20,000 clock radios per period. In the short run, what is the average total cost of producing 20,000 clock radios? Provide a numerical value based on your answer in part a.
d. What happens to average total cost of production in the long run? Provide a numerical value based on your answer in part a.

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Definitions:

Retrospective Application Method

An accounting method that applies a new policy or correction as if it had always been in effect, adjusting past financial statements accordingly.

Previously Released

Referring to information or data that has been made available to the public before the current date.

All-Inclusive Income Concept

A method of accounting where every revenue, gain, expense, and loss is included in the income statement to give a comprehensive view of financial performance.

Straight-Line Method

It is an approach for evenly distributing the cost of an asset over its useful life.