Question

The Fischer Company uses the high-low method to estimate the cost function. Year-to-date information for 2020 is provided below:

	Machine-hours	Labor Costs
January	400	$10,000
February	280	$ 7,000
March	390	$10,050
April	240	$ 7,400
May	320	$ 9,500

What can Fischer expect the total cost to be when 300 machine-hours are used?

a) $9,375.00

b) $8,375.00

c) $7,554.55

d) $7,381.25

Kate and Will manufacture baby carriages. Each new employee takes 5 hours to make the first carriage. He is paid $22 per hour. The manufacturing overhead charge per hour is $20. The baby carriage material costs $70 per unit.

What is the total time needed to build the new employee’s first 16 baby carriages using a 90% cumulative average-time learning curve model? (For a 90% cumulative average learning curve, b = -0.152004.)

a) $3,324.50

b) 111.848 hours

c) $4,480

d) 52.488 hours

Zephram Corporation has a plant capacity of 200,000 units per month. Unit costs at capacity are:

Direct materials	$ 4.00
Direct labor	6.00
Variable overhead	3.00
Fixed overhead	1.00
Marketing -- fixed	7.00
Marketing/distribution -- variable	3.60
Total	$ 24.60

Current monthly sales are 190,000 units at $30.00 each. Q, Inc. has contacted Zephram Corporation about purchasing 2,000 units at $24.00 each. Current sales would not be affected by the one-time-only special order.

What is Zephram's change in operating profits if the one-time-only special order is accepted?

a) $12,000 decrease in profit

b) $1,200 decrease in profit

c) $14,800 increase in profit

d) $20,000 increase in profit

Answer 1

high low method uses hihest and lowest activity

	Units	Cost
High	400	$10,000
Low	240	$7,400
change	160[400-240]	$2,600 [10,000-7,400]

variable cost= change in cost/change in activity

=$2,600/160

=$16.25

fixed cost = total cost-variable cost

$10,000 - ($16.25*400)

=$3,500 (this will remain same at all machine hours activity)

300 machine hours

Total cost= fixed cost+variable cost

=$3,500 + ($16.25*300)

=$8,375

Answer B)

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