Yarrawonga Company’s management accountant has collected the following information:
Units of Output 30 000 Units 42 000 Units
Direct materials $180 000 $252 000
Workers' wages 1 080 000 1 512 000
Supervisors' salaries 312 000 312 000
Equipment depreciation 151 200 151 200
Maintenance 81 600 110 400
Utilities 384 000 528 000
Total $2 188 800 $2 865 600
Required:
Using the high-low method and the information provided above:
a. Identify the linear cost function equation (5 marks)
b. Estimate the total cost at 36 000 units of output (1 mark)
c. Explain the managers about the potential use of nonlinear curves in cost functions and
cost analysis. Give two examples
1). Lower activity level = 30,000 units
Cost at lower level = $2,188,800
Higher activity level = 42,000 units
Cost at higher level = $2,865,600
Variable cost per unit = (Cost at higher level - Cost at lower
level) / (Higher level - Lower level)
= ($2,865,600 - $2,188,800) / (42000 - 30000)
= $676,800 / 12000
= $56.4 per unit
Fixed cost = Total cost at lower level - Variable cost at lower
level
= $2,188,800 - (30,000 * $56.4)
= $496,800
linear cost function = Y = a + bX
Y = $496,800 + $56.4X
2). Total cost of 36,000 units
Y = $496,800 + $56.4 * 36,000
Y = $2,527,200 i.e. Total cost
3). Cost functions are not always linear. A nonlinear cost function is a cost function for which the graph of total costs is not a straight line within the relevant range of operations. One example is a series of straight-line segments that change their slopes at critical intersection points within the range of operation. Another example would be a step function. A step function is a function where the cost remains the same over various ranges of the level of activity, but the cost increases by discrete amounts (or steps) as the level of activity advances from one range to another. In addition to the examples mentioned above, there are situations where the cost or use of resources can be represented by a curve instead of a single straight line or a group of segmented straight lines. One example of a curve is a learning curve. A learning curve is a function that measures how labor-hours per unit decline as units of production increase because workers are learning and becoming better at their jobs.
Yarrawonga Company’s management accountant has collected the following information: Units of Output 30 000 Units 42...
The Wildcat Company has provided the following information: Units of Output 30,000 Units 42,000 Units Direct materials $ 180,000 $ 252,000 Workers' wages 1,080,000 1,512,000 Supervisors' salaries 312,000 312,000 Equipment depreciation 151,200 151,200 Maintenance 81,600 110,400 Utilities 384,000 528,000 Total $2,188,800 $2,865,600 Required: Using the information provided above, a. calculate variable cost per unit and total fixed cost, and further identify the linear cost function equation b. estimate the total cost at 36,000 units of output.
The Wildcat Company has provided the following information: Units of Output 30,000 Units 42,000 Units Direct materials $ 180,000 $ 252,000 Workers' wages 1,080,000 1,512,000 Supervisors' salaries 312,000 312,000 Equipment depreciation 151,200 151,200 Maintenance 81,600 110,400 Utilities 384,000 528,000 Total $2,188,800 $2,865,600 Required: Using the information provided above, a. calculate variable cost per unit and total fixed cost, and further identify the linear cost function equation b. estimate the total cost at 36,000 units of output.
VII. The Wildcat Company has provided the following information: Units of Output 30,000 Units 42,000 Units Direct materials Workers' wages Supervisors' salaries Equipment depreciation Maintenance $ 180,000$ 252,000 1,080,000 1,512,000 312,000 312,000 151,200 151,200 81,600 110,400 384,000 528.000 $2,188,800 $2,865,600 Utilities Total Using the high-low method and the information provided above, identify the linear cost function equation using OLS. b. estimate the total cost at 36,000 units of output. a.
Operations Brony’s Bikes was incorporated more than 30 years ago to manufacture ten-speed touring bikes. An exercise bike and mountain bikes later added to the product line. Currently, the company manufactures the following products: Grand Prix: Ten-speed touring bike Phoenix: Deluxe eighteen-speed racing bike Pike’s Peak: Twelve-speed mountain bike Himalaya: Eighteen-speed deluxe mountain bike Waistliner: Stationary exercise bike All of these products are manufactured in a single facility, which is located in eastern Texas. Derailleurs (front and rear) comprise a...