Grip Manufacturing Currently Produces 1,000 Tires Per Month The Plant Has Capacity for 3,000 Tires and Is Considering

question 107

Multiple Choice

Grip Manufacturing currently produces 1,000 tires per month.The following per unit data for 1,000 tires apply for sales to regular customers: $$\begin{array} { l r } \text { Direct materials } & \$ 30 \\\text { Direct manufacturing labor } & 5 \\\text { Variable manufacturing overhead } & 8 \\\text { Fiæed manufacturing overhead } & \underline { 12 } \\\text { Total manufacturing costs } & \underline { \$ 55 }\end{array}$$ The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires.What is the total cost of producing 2,000 tires?

• A) $110,000
• B) $98,000
• C) $68,000
• D) $88,000

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Definitions:

Indirect Method

A way of reporting net cash flow from operating activities in the statement of cash flows by adjusting net income for changes in working capital items and non-cash transactions.

Statement of Cash Flows

This financial statement provides an overview of a company's cash inflow and outflow over a period, detailing sources and uses of cash from operating, investing, and financing activities.

Operating Activities

Operating activities refer to the day-to-day functions involved in running a business, which are directly related to its primary activities and include generating revenue and paying expenses.

Depreciated Equipment

Equipment whose value has been reduced over time due to wear and tear or obsolescence, reflecting its reduced utility.