Determining Cost Behavior and Calculating Expected Cost
Tweety Company manufactures one model of birdbath, which is very popular. Tweety sells all units it produces each month. The relevant range is 0–1,500 units, and monthly production costs for the production of 1,000 units follow. Tweety’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.
Production Costs | Amount |
Direct materials | $ 1,500 |
Direct labor | 7,500 |
Utilities ($100 fixed) | 650 |
Supervisor’s salary | 3,000 |
Maintenance ($280 fixed) | 480 |
Depreciation | 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). State any assumptions you make.
2. Determine the total fixed cost per month and the variable cost per unit for Tweety.
3. State Tweety’s linear cost equation for a production level of 0–1,500 units.
4. Calculate Tweety’s expected total cost if production increased to 1,200 units per month.
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