# Graham's Manufacturing Industries Case Study Solution

Register to read the introduction… The variable cost is \$1 per flange for materials, and \$2 per flange (\$20 per hour divided by 10 flanges per hour) for direct manufacturing labor.

2. The inventoriable (manufacturing) cost per unit for 5,000 flanges is \$3 × 5,000 + \$20,000 = \$35,000. Average (unit) cost = \$35,000 ÷ 5,000 units = \$7 per unit.
This is below Fred’s selling price of \$8.25 per flange. However, in order to make a profit, Graham’s Glassworks also needs to cover the period (non-manufacturing) costs of \$10,000, or \$10,000 ÷ 5,000 = \$2 per unit.
Thus total costs, both inventoriable (manufacturing) and period (non-manufacturing), for the flanges is \$7 + \$2 = \$9. Graham’s Glassworks cannot sell below Fred’s price of \$8.25 and still make a profit on the flanges.

Alternatively,
At Fred’s price of \$8.25 per flange:
|Revenue |\$8.25 |× |5,000 |= | \$41,250 |
|Variable costs |\$3.00 |× |5,000 |= | 15,000 |
|Fixed costs | | | | | 30,000 |
|Operating Loss | | | | | \$ (3,750)