Question

Required information

Morning Dove Company manufactures one model of birdbath, which is very popular. Morning Dove sells all units it produces each month. The relevant range is 0–1,900 units, and monthly production costs for the production of 1,600 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.  

Production Costs	Total Cost
Direct materials	$	2,100
Direct labor		6,700
Utilities ($150 fixed)		570
Supervisor’s salary		3,500
Maintenance ($280 fixed)		510
Depreciation		900

Required:

1. Identify each cost as variable, fixed, or mixed, and express each cost as a rate per month or per unit (or combination thereof).

2. Determine the total fixed cost per month and the variable cost per unit for Morning Dove.

3. State Morning Dove’s linear cost equation for a production level of 0–1,900 units. Enter answer as an equation in the form of y = a + bx.

4. Calculate Morning Dove’s expected total cost if production increased to 1,800 units per month. Enter answer as an equation in the form of y = a + bx.

Answer 1

1)	production costs		Behaviour	Rate
	Direct materials		variable	1.31	per unit		per month
	Direct labor		variable	4.19	per unit		per month
	Utilities		Mixed	0.26	per unit	150	per month
	supervisor's salary		Fixed		per unit	3,500	per month
	Maintenance		Mixed	0.14	per unit	280	per month
	Depreciation		Fixed		per unit	900	per month
2)	Total variable cost per unit			5.91
	total fixed cost per unit			4,830
3)	total cost	4,830	+	5.91	x
4)	a	+	b	X	x	=	y
	4,830	+	5.91	X	1800	=	15461