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 0-2,000 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 Direct materials Direct labor Utilities ($120 fixed) Supervisor's salary Maintenance ($280 fixed) Depreciation Total Cost $ 2,900 7,500 640 3,200 500 800 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 0-2,000 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

ANSWER1

	AMOUNT	VARIABLE COST PER UNIT	FIXED COST(per month)	NATURE	REMARKS
Units	1600
Direct Materials	$2900	$1.8125	$0	Variable	It is always a variable cost and cost per unit is calculated as$2900 divided by 1600 units.
Direct Labor	$7500	$4.6875	$0	Variable	It is always a variable cost. cost per unit is calculated as $7500 divided by 1600
Utilities	$520	$0.325	$120	Mixed	As $120 is fixed. So cost per unit will be computed as $520 divided by1600
Superviser Salary	$3200	$0	$3200	Fixed	It is fixed cost.
Maintenance	$220	$0.1375	$280	Mixed	As $280 is fixed. So cost per unit will be calculated as $220 divided by 1600
Depreciation	$800	$0	$800	Fixed	It is a fixed cost
TOTAL		$6.9625	$4400

ANSWER2

VARIABLE COST PER UNIT=$6.96 [approx]

FIXED COST = $4400

ANSWER 3

COST EQUATION:

y=$4,400 + $6.96x

ANSWER4

COST EQUATION y=$4,400 + $6.96x

y=$4400 + $6.96*1800

y=$4400 + $12,528

y=$16,928

So, total cost of production of 1800 units is $16,928

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