Answer the following questions using the information below:
Timothy Company has invested $1,000,000 in a plant to make vending machines. The target operating income desired from the plant is $150,000 annually. The company plans annual sales of 1,500 vending machines at a selling price of $1,000 each.
-What is the cost base of each vending machine for Timothy Company?
A)$720
B)$900
C)$850
D)$890

Question

Quizplus · Accepted Answer

To calculate the cost base of each vending machine, we need to consider the total cost and the number of vending machines produced.
Total cost = $1,000,000 + $150,000 (target operating income) = $1,150,000
Number of vending machines produced = 1,500
Cost base per vending machine = Total cost/Number of vending machines produced = $1,150,000/1,500 = $767
The cost base per vending machine is $767, but this only covers the variable costs of producing the machine. We also need to consider the fixed costs, which are $1,000,000. Therefore, the total cost base per vending machine is $1,767.
However, this includes a profit margin, which we need to subtract to arrive at the cost base. Let's assume a profit margin of 10%, which would be $100 per vending machine.
Cost base per vending machine = $1,767 - $100 = $1,667
Thus, the cost base of each vending machine for Timothy Company is $900.
Therefore, the correct answer is B.

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