Question

Morning Dove Company manufactures one model of birdbath, which is very popular. Morning Dove sells all units it produces each month. The relevant range is 0–2,000 units, and monthly production costs for the production of 1,600 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.   

Production Costs	Total Cost
Direct materials	$	2,700
Direct labor		7,100
Utilities ($120 fixed)		620
Supervisor’s salary		3,400
Maintenance ($280 fixed)		460
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). (Round your per unit value to 2 decimal places.)
Direct Materials:
Direct Labor:

Utilities:

Supervisors Salary:

Maintenence:

Depreciation

2. Determine the total fixed cost per month and the variable cost per unit for Morning Dove. (Round your variable cost per unit to 2 decimal places.)

Total Variable Cost per Unit:

Total Fixed Cost per Month


3. State Morning Dove’s linear cost equation for a production level of 0–2,000 units. Enter answer as an equation in the form of y = a + bx. (Round your variable cost per unit to 2 decimal places.)
Total Cost= ()+()x


4. Calculate Morning Dove’s expected total cost if production increased to 1,800 units per month. Enter answer as an equation in the form of y = a + bx. (Round Variable cost per unit to 2 decimal places.)

Answer 1

1.Classification:

	Type	Variable Cost per Unit	Fixed Cost per Month
Direct Materials	Variable	1.6875
Direct Labor	Variable	4.4375
Utilities	Mixed	0.3125	120
Supervisors Salary	Fixed		3,400
Maintenence	Mixed	0.1125	280
Depreciation	Fixed		800
Total		6.55	4,600

Variable cost for the month has been divided by 1600 to get Variable cost per unit

Fixed cost does not change with a change in the level of production

2. Total Variable Cost per Unit = $6.55

Total Fixed Cost per Month = $4,600

3. Total Cost = Fixed Cost + No. Of Units*Variable Cost per Unit

Total Cost(y) = 4,600 + 6.55x

4. Total Cost(y) = 4,600 + 6.55x

X = 1800

Total Cost = 4600 + 6.55*1800

= $16,390