Question

If you can also explain on how you got the answer(s), I would really appreciate it! thanks

2. . Rolling Hills Bistro produces one of the best sausage products in Tennessee. The company's controller compiled the following information by analyzing the accounting records: 1. Meat costs the company $3.25 per pound of sausage produced. 2. Compensation of production employees is $2.25 per pound of sausage produced. 3. Supervisory salaries total $23,000 per month. 4. The company incurs utility costs of $9,000 per month plus $0.35 per pound of sausage produced 5. Insurance and property taxes average $6,400 per month. Required: A. Classify each cost as variable, fixed, or semi variable. B. Write a formula to express the behavior of the firm's production costs. (Use the form Y= a+bX, where X denotes the quantity of sausage produced.)|

Answer 1

A.
1. Meat Cost is variable since cost is per pound of sausage i.e. in direct proportion to output
2. Compensation is variable since cost is per pound of sausage i.e. in direct proportion to output
3. Supervisory Salaries is a fixed cost, since it remains same irrespective of output.
4. Utility cost is semi variable, since it has fixed cost and also variable cost
5. Insurance and Property taxes is a fixed cost, since it remains same irrespective of output

B.
Total Variable cost per pound = $3.25+2.25+0.35 = $5.85 per pound
Total Fixed Cost = $23000+9000+6400 = $38400

Formula
Y = $38400 + $5.85 x