Question

Question 4: Cost structure estimation Fixed or variable? OF OV OF OV Cost account direct labor direct materials depreciation rent administrative staff salaries Production volume was 200 units Amount $4,000 $6,000 $6,000 $7,000 $7,000 OF OV a) Which cost structure estimation method should we use? O high-low method O account classification method b) Classify each cost account above as fixed or variable. Enter your answers in the table above c) Estimate the cost structure parameters: total FC $ unit VC= $ Write down the total cost equation: (e.g., if TC-500+2 volume, enter 500 in the first box and 2 in the second box) d) Predict the total cost of producing 250 units: volume

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MANAGERIAL ACCOUNTING QUESTIONS

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Answer 1

(a)

Account classification method should be used here to classify costs into fixed costs and variable costs. High low method of cost classification is used when different output levels and total cost at different output levels is given.

(b)

Cost account	Amount	Fixed or variable
Direct labor	$4,000	Variable
Direct material	$6,000	Variable
Depreciation	$6,000	Fixed
Rent	$7,000	Fixed
Administrative staff salaries	$7,000	Fixed

(c)

Total fixed cost = 6,000 + 7,000 + 7,000

= $20,000

Total variable cost = 4,000 + 6,000

= $10,000

Production volume = 200 units

Variable cost per unit = Total variable cost/Production volume

= 10,000/200

= $50

Total cost = 20,000 + 50 x Volume

(d)

Cost of producing 250 units = 20,000 + 50 x 250

= 20,000 + 12,500

= $32,500

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