Posted: August 31st, 2016

What is the startup cost?

The standard compound sold for $20 a case and the commercial compound sold for $30 a case during the first six months of the year. The manufacturing costs, by case of product, are presented in the schedule below. Each product is manufactured on a separate production line. Annual normal manufacturing capacity is 200,000 cases of each product. However, the plant is capable of producing 250,000 cases of standard compound and 350,000 cases of commercial compound annually.
Cost Per Case
Standard Commercial
Direct Material $7.00 $8.00
Direct Labor $4.00 $4.00
Variable manufacturing Overhead $1.00 $2.00
Fixed manufacturing Overhead* $4.00 $5.00
Total Manufacturing Cost $16.00 $19.00
Variable Selling and Administrative Costs $4.00 $7.00
*Depreciation charges are 50 percent of the fixed manufacturing overhead of each line.
The following schedule reflects the consensus of top management regarding the price-volume alternatives for the Super Clean products for the last six months of the current year. These are essentially the same alternatives management had during the first six months of the year.
Standard Compound Commercial Compound
Alternative Prices (per case) Sales Volume(in cases) Alternative Prices (per case) Sales Volume(in cases)
$18.00 120,000.00 $25.00 175,000.00
$20.00 100,000.00 $27.00 140,000.00
$21.00 90,000.00 $30.00 100,000.00
$22.00 80,000.00 $32.00 55,000.00
$23.00 50,000.00 $35.00 35,000.00

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