Question

Mears Production Carripany makes several products and sells them for an average price of $75. Mears' accountant is considering two different approaches to estimating the firm's tatal mainthly cost function, 1) account analysis, and 2) high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in February, when production was 1,850 units. The following are the results of that analysis: Cost Item Total Cost Fixed Cost Variable Cost Direct materials $8,140 $8,695 $0 $0 $8,140 sa,695 Direct labor Factory overhead $3,090 $4,625 $7,715 $6,985 $3,840 Selling expenses Administrative expenses $3,145 $0 $3,450 S3,450 Total expenses $34,985 $10,380 $24,605 For the high-low method, she developed the cost function using the data from February above and data from May, when production was 2,500 units and total costs were 144,835. After developing the two cost functions, the accountant used them to make predictions for the month of December, when production was expected to be 2,350 units. REQUIRED (ROUND UNIT COSTS TO THE NEAREST CENT AND TOTAL COSTS TO THE NEAREST DOLLARI Part A (5 tries; 5 points) 1. Using account analysis, what was the accountant's estimate of total fixed costs for December? 2. Using account analysis, what was the accountant's estimate of total variable costs for December? Submit Answer Tries 0/5 Part B (5 tries; 5 points) 1. Using the high-law method, what was the accountant's estimate of total fixed costs for December? 2. Using the high-low method, what was the accountant's estimate of variable costs sicr unit for December? Subinit Answer Tries 0/5 Threaded view. Chronological View Other Views .... Export My_general preferences on what is marked as NEW Mark NEW posts na langer new

Answer 1

part A

1) $10380

3090+3840+3450=10380

as per accounting analysis fixed cost will not change for the production level,so the fixed cost for the month december is $10380

2) $31255

using accounting analysis total variable cost for 2350 units is

variable cost for 2350 units=(variable cost of 1850 units/1850)*2350

by applying this equation in direct material,direct labr,factory overheads and selling expense

direct material=(8140/1850)*2350=10340

direct labour=(8695/1850)*2350=11045

factory overhead=(4625/1850)*2350=5875

selling expense=(3145/1850)*2350=3995

total variable cost=10340+11045+5875+3995=31255

part b

1) $7085

using high low method

variable cost per unit=(total cost of highest activity level-total cost of lowest activity level)/(highest activity level-lowest activity level)

highest activity level is 2500 units and lowest activity level is 1850 units therefore total costs for these activity levels are $44835 and $34985 respectively

variable cost per unit=(44835-34985)/(2500-1850)=$15.1

applying this variable cost per unit on 2500 units

total cost =fixed cost + variable cost

44835=fixed cost+(15.1*2500)

44835=fixed cost+37750

fixed cost=44835-37750=7085

2) $15.1

variable cost per unit=(total cost of highest activity level-total cost of lowest activity level)/(highest activity level-lowest activity level)

highest activity level is 2500 units and lowest activity level is 1850 units therefore total costs for these activity levels are $44835 and $34985 respectively

variable cost per unit=(44835-34985)/(2500-1850)=$15.1