Smith Soda spends $1 on direct materials, direct labor, and variable manufacturing overhead for every

unit (12-pack of soda) it produces. Fixed manufacturing overhead costs $6 million per year. The plant,
which is currently operating at only 75% of capacity, produced 25 million units this year. Management
plans to operate closer to full capacity next year, producing 30 million units. Management doesn’t
anticipate any changes in the prices it pays for materials, labor, and manufacturing overhead.

1. What is the current total product cost (for the 25 million units), including fixed and variable
costs?

2. What is the current average product cost per unit?

3. What is the current fixed cost per unit?

4. What is the forecasted total product cost next year (for the 30 million units)?

5. What is the forecasted average product cost next year?

6. What is the forecasted fixed cost per unit?

7. Why does the average product cost decrease as production increases?

JR Equipment produces high-quality basketballs. If the fixed cost per basketball is $2 when the company
produces 9,000 basketballs, what is the fixed cost per basketball when it produces 18,000 basketballs?
Assume that both volumes are in the same relevant range.

McTorry Razors produces deluxe razors that compete with Gillette’s Mach line of razors. Total
manufacturing costs are $120,000 when 15,000 packages are produced. Of this amount, total variable
costs are $50,000. What are the total production costs when 25,000 packages of razors are produced?
Assume the same relevant range.