This problem has two parts. In Part A, you
are asked to do account analysis based on cost and activity
information that you are given for one particular month.
In Part B, you are asked to do the high-low method based on cost
and activity information for that same month and another one.
Note that for both parts, you are asked to make predictions for the
same month.
Each part of the problem is worth five points and has two
questions. There is no partial credit within a part, so to get the
five points for a part, you must answer both questions correctly.
You get five tries for each part (not for each individual
question).
______________________________________________________
Mears Production Company makes several products and sells them for
an average price of $85. 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 February, when production was 1,600
units. The following are the results of that analysis:
Cost Item |
Total Cost |
Fixed Cost |
Variable Cost |
Direct materials |
$7,200 |
$0 |
$7,200 |
Direct labor |
$8,320 |
$0 |
$8,320 |
Factory overhead |
$7,090 |
$3,410 |
$3,680 |
Selling expenses |
$5,100 |
$3,340 |
$1,760 |
Administrative expenses |
$4,450 |
$4,450 |
$0 |
Total expenses |
$32,160 |
$11,200 |
$20,960 |
For the high-low method, she developed the cost function using the
data from February above and data from May, when production was
2,300 units and total costs were $42,157.
After developing the two cost functions, the accountant used them to make predictions for the month of December, when production was expected to be 2,075 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
December? 11200
2. Using account analysis, what was the accountant's estimate of
total variable costs for
December? 27182.5000
You are correct. Your receipt no. is 159-8748 |
Previous Tries |
Part B (5 tries; 5 points)
1. Using the high-low 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 per unit for December?
Computation of Variable Cost per Unit using high-low method;
Computation of Fixed Cost per Unit using high-low method;
Part B
1. Using the high-low method, what was the accountant's estimate of total fixed costs for December?
Ans: $9,313
2. Using the high-low method, what was the accountant's estimate of variable costs per unit for December?
Ans: 2,075 Units * 14.28 = $29,631
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