Question

it is a managerial accounting

it is a important question please donot carefully

11 ta Below are the processing costs of Hansen Inc. observed for producing a type of mult- vitamin tablets in bottles over the last 6 months: Ay > Month 1 2 3 4 5 6 Units of bottles Produced 5500 9,000 13,000 3,500 17,000 4,500 Processing Cost $36,000 $44,000 $51,000 $30,000 $39,000 $35,000 a Use the high low method to determine the variable cost per unit and fixed cost per month. Express your results in the form of a linear equation y = a + bx. (15 marks) a. Predict the total processing cost if 22,000 units are produced. (10 marks)

Answer 1

Under High-Low method formula to calculte Variable cost per unit .....

• Variable cost per unit = (Total process Cost of High volume - Total process cost of Low Volume) / (High volume - Low Volume)

Under the current Question ...

• High volume = 17,000
• Low Volume = 3500
• Total process Cost of High volume = 39000
• Total process cost of Low Volume = 30,000

So lets apply above figures in to the formula...

• Variable cost per unit = (Total process Cost of High volume - Total process cost of Low Volume) / (High volume - Low Volume)
• Variable cost per unit = (39,000- 30,000) / (17000 - 3500)
• Variable cost per unit = (9,000) / (13500)
• Variable cost per unit = 0.6666666
• Variable cost per unit = 0. 67 (rounded)

Fixed Cost = Total cost - Variable cost

Under Low-Volume i.e. 3500

• Fixed Cost = Total cost - Variable cost
• Fixed Cost = 30,000 - ($ 0.67 per unit * 3500 units)
• Fixed Cost = 30,000 - 2345
• Fixed Cost = 27,655

Under High-Volume i.e. 17000

• Fixed Cost = Total cost - Variable cost
• Fixed Cost = 39,000 - ($ 0.67 per unit * 17000 units)
• Fixed Cost = 39,000 - 11390
• Fixed Cost = 27,610

Fixed cost under Low and High volume differes by $ 45 (i.e. 27655- 27610) which is nominal difference hence choosing either fixed cost will not affect total cost that much.

Above findings in liner function would be like...

• total Cost = Fixed Cost + Variable cost per unit * unit
• Y= a + bx
• where, Y = total cost
• a = Fixed cost
• b = Variable cost per units
• x = volume

there fore....

• Y= a + bx
• Y= 27,610 + 0.67x (based on high volume)
• or say...
• Y= 27,655 + 0.67x (based on low volume)

QUESTION 2 :

Total cost for 22000 units based on above findings.

lets use above linear function to find Total cost of 22000 units

• Y= 27,610 + 0.67x (based on high volume)
• Y= 27,610 + 0.67 * 22000
• Y= 27,610 + 14,740
• Y = 42,350
• Hence total cost is $ 42,350.00

or say....

• Y= 27,655 + 0.67x (based on low volume)
• Y= 27,655 + 0.67 * 22000
• Y= 27,655 + 14,740
• Y = 42,395
• Hence total cost is $ 42,395.00