BUS 640 Week 3 Production Cost Analysis and Estimation Applied Problems
1. Jennifer Trucking Company operates a large rig transportation business in Texas that transports locally grown vegetables to San Diego, California. The company owns 5 large rigs and hires local drivers paid fixed salaries monthly, regardless of the number of trips or tons of cargo that each driver transports each month.
2. The Palms Dry Cleaning Shop in Fort Lauderdale, Florida, faces a highly seasonal demand for its services, as the snow-birds retirees flock to Florida in mid-fall to enjoy the mild winter weather and then return to their main homes in mid-spring. Given this seasonality, Palms tries to keep the overhead costs as low as possible and therefore, often uses seasonal contracted labor to man its operations. The following table shows the labor costs in each month of operation over the past 12 months as well as the total number of garments that were dry-cleaned in each month. Palms pays fixed wages per hour to each employee, and we can assume that the costs of other variable inputs (such as chemicals, electricity, etc) have remained constant.
3. Over the past 12 months the Four Winds Novelty Company firm has recorded its internet sales (equals monthly output levels) and its monthly total variable costs (TVC) for a particular novelty item as shown in the following table. Sales have grown over this period with relatively few shocks due to uncontrollable weather, political and sporting events. This online retailer carries no inventories; when it receives a pre-paid on-line order from a customer, it simply buys the product from a supplier and ships it out to the customer.