Question

Mears Production Company makes several products and sells them for an average price of $70. Mears' accountant is considering two different approaches to estimating the firm's total monthly 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 June, when production was 1,550 units. The following are the results of that analysis: Cost Item Total Cost Variable Cost Fixed Cost Direct materials $6,510 $6,510 $0 Direct labor $7,750 $7,750 $0 Factory overhead $7,965 $4,495 $3,470 Selling expenses $6,145 $2,325 $3,820 Administrative expenses $3,200 $0 $3,200 Total expenses $31,570 $21,080 $10,490 For the high-low method, she developed the cost function using the data from June above and data from May, when production was 2,300 units and total costs were $42,918. After developing the two cost functions, the accountant used them to make predictions for the month of October, when production was expected to be 2,100 units. REQUIRED [ROUND UNIT COSTS TO THE NEAREST CENT AND TOTAL COSTS TO THE NEAREST DOLLAR.] Part A (5 tries; 5 points) 1. Using account analysis, what was the accountant's estimate of total fixed costs for October? 2. Using account analysis, what was the accountant's estimate of variable costs per unit for October? Submit Answer Tries 0/5 Part B (5 tries; 5 points) 1. Using the high-low method, what was the accountant's estimate of total fixed costs for October? 2. Using the high-low method, what was the accountant's estimate of total variable costs for October?

Answer 1

Part A 1 Using Account analysis total fixed costs for October month $10,490 2 Using Account analysis variable cost per unit for October $13.60 $21,080/1,550 Part B 1 Using High-Low method, total fixed costs for October month $8,117 2 Using High-Low method, variable cost per unit for October month $15.13 Working notes: May June High Low Difference $42,918 $31,570 $11,348 2,300 1,550 750 Total cost Total units Variable cost per unit Difference in Total costs Difference in Total units $11,348 750 $15.13 Calculation of Fixed cost Total units Variable cost per unit Variable cost Fixed cost High Low 2,300 1,550 $15.13 $15.13 $34,801 $23,453 (Units * Variable cost) $8,117 $8,117 (Total costs-Total variable costs)