Wheel and Tire Manufacturing currently produces 1,000 tires per month.The following per unit data apply for sales to regular customers: 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?

Question

Wheel and Tire Manufacturing currently produces 1,000 tires per month.The following per unit data apply for sales to regular customers:  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?

Quizplus · Accepted Answer

To determine the total cost of producing 2,000 tires, we will use the total cost formula:

Total Cost = Fixed Cost + Variable Cost

We are not given the fixed cost, but we know that it remains constant regardless of the number of tires produced. Therefore, we can use the given information to calculate the variable cost per unit and then use it to find the total variable cost for producing 2,000 tires.

Variable Cost per unit = Direct Material Cost per unit + Direct Labor Cost per unit + Variable Overhead cost per unit

= $42 + $20 + $8

= $70

Total Variable Cost for producing 2,000 tires = Variable Cost per unit x Number of tires

= $70 x 2,000

= $140,000

Total Cost = Fixed Cost + Total Variable Cost

Assuming that the fixed cost remains the same for producing either 1,000 tires or 2,000 tires (as stated in the question), we can find the fixed cost by subtracting the total variable cost of producing 1,000 tires from the total cost of producing 1,000 tires.

Total Cost of producing 1,000 tires = Fixed Cost + Total Variable Cost for producing 1,000 tires

Since we know that the total variable cost for producing 1,000 tires is:

Total Variable Cost for producing 1,000 tires = Variable Cost per unit x Number of tires

= $70 x 1,000

= $70,000

Then, we can rearrange the above formula to find Fixed Cost:

Fixed Cost = Total Cost of producing 1,000 tires - Total Variable Cost for producing 1,000 tires

= $80,000 - $70,000

= $10,000

Now we can use the above values to find the total cost of producing 2,000 tires:

Total Cost = Fixed Cost + Total Variable Cost

= $10,000 + $140,000

= $150,000

Therefore, the total cost of producing 2,000 tires is $68,000 (option C).

Wheel and Tire Manufacturing Currently Produces 1,000 Tires Per Month