Question

Inspection costs at one of Ratulowski Corporation's factories are listed below: April May June July August September October November December Units Produced 923 985 929 913 935 920 937 877 916 Inspection Costs $18,012 $18,400 $18,065 $17,916 $18,094 $17,980 $18,132 $17,380 $17,938 Management believes that inspection cost is a mixed cost that depends on units produced Using the high-low method, the estimate of the fixed component of inspection cost per month is closest to: (Round your intermediate calculations to 2 decimal places.) Multiple Choice $17,920.00 $17.91100 $17,301.00 $9.10160

Answer 1

Ans. 1	Option 4th $9,101.60
	*First, we need to calculate the variable rate then we will be able to compute the fixed cost.
	Variable cost per unit = (Highest cost - Lowest cost) / (Highest units produced - Lowest units produced)
	($18,400 - $17,380) / (985 - 877)
	$1,020 / 108
	$9.44 per unit
	Now, we can calculate the fixed overhead cost by using either highest activity or lowest activity.
	*Calculation of fixed overhead cost using Highest units produced :
	Fixed overhead cost = Highest cost - (Highest units produced * Variable cost per unit)
	$18,400 - (985 * $9.44)
	$18,400 - $9,298.40
	$9,101.60
	So the fixed cost is $9,101.60 per month.
Ans. 2	Option 3rd $194,800
	Particulars	Amount	Amount
	Sales		$411,000
	Variable expenses:
	Cost of goods sold	$174,300
	Selling expenses	$26,200
	Administrative expenses	$15,700
	Total variable expenses		$216,200
	Contribution margin		$194,800
Ans. 3	Option 1st $12.20
	Increase in production units = 5,001 - 5,000 = 1 unit
	*Calculations of variable manufacturing cost per unit :
	Direct materials	$7.05
	Direct labor	$3.50
	Variable manufacturing overhead	$1.65
	Total variable manufacturing cost per unit	$12.20
	*Fixed cost would not increase as per the level of production units.
	*Incremental manufacturing cost = Variable manufacturing cost per unit * Increase in production units
	$12.20 * 1
	$12.20