Question

# This problem has two parts.  In Part A, you are asked to do account analysis based on...

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).

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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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