Question

3 – A2 Division of Mixed Costs into Variable and Fixed Components

Molly Flutie, president of First Tool, Co., has asked for information about the cost behavior of manufacturing support costs. Specifically, she wants to know how much support cost is fixed and how much is variable. The following data are the only records available:

Month	Machine Hours	Support Costs
May	1,700	$ 22,000
June	1,600	21,000
July	1,500	19,500
August	1,400	18,500
September	1,300	18,000

1. Find monthly fixed support cost and the variable support cost per machine hour by the high-low method.
2. Explain how your analysis for requirement 1 would change if new October data were received and machine hours were 1,650 and support costs were $24,000.
3. A least-square regression analysis gave the following output:

Regression equation: Y = $4,050 + 10.50X

What recommendations would you give the president based on these analyses?

Answer 1

computation of monthly tired support coib and vanalite tupport is per machine hour uring high-low low method: Varlacu Machine com per hour. 411000 - $16000 1100 - 1300 $4000 400 hours Varia un support cost per machine hour is to fired support ceste is (100 hours x +10) + Fred Support costs - $22.000 → Fized support coib . $12000- $17000 fized support corto - $ sudo Month Vanable support 2016 fiud support costo May 1700 x $10 - $17000 $ 5000 1600 x $10 - $16000 $ 5000 $ 4500 July 1560 * $10 - $15000 August 1400 * $10 $14.000 $ 4500 $ 5000 September 1300 x $10 . *13000 56.60 October, machine hours are 1650 and support cest are $24000, then revised variance support cest per unit under high-low method is $24000 - $18000 100 hours - 1300 hours $6000 June uod hour 1/1 =