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Variable costs, fixed costs, relevant range. Meg Munchies Ltd. manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 5,000 per month. The machine costs $6,000 and is depreciated using straight-line depreciation over 10 years assuming zero residual value. Rent for the factory space and warehouse, and other fixed manufacturing overhead costs, total $1,000 per month. The company currently makes and sells 3,000 jaw-breakers per month. Meg Munchies buys just enough materials each month to make th e jaw-breakers it needs to sell. Materials cost 10 cents per jaw-breaker. Next year the company expects demand to increase by 100%. At this volume of materials purchased, it will get a 10% discount on price. Rent and other fixed manufacturing overhead costs will remain the same. Required 1. What is the current annual relevant range of output? 2. What is the current annual fixed manufacturing cost within the relevant range? What is the variable manufacturing cost? 3. What will the relevant range of output be next year? How will total fixed and variable manufacturing costs change next year?
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