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 0–1,500 units, and monthly production costs for the production of 1,200 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.   

Production Costs	Total Cost
Direct materials	$	1,500
Direct labor		7,900
Utilities ($110 fixed)		580
Supervisor’s salary		3,400
Maintenance ($310 fixed)		490
Depreciation		900

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.)



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.)



3. State Morning Dove’s linear cost equation for a production level of 0–1,500 units. Enter answer as an equation in the form of y = a + bx. (Round your variable cost per unit to 2 decimal places.)



4. Calculate Morning Dove’s expected total cost if production increased to 1,400 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]

	Behavior	Rate
Direct materials	Variable	$1.25	per unit		per month
Direct Labor	Variable	$6.58	per unit		per month
Utilities	Mixed	$0.39	per unit	$110	per month
Supervisor's Salary	Fixed		per unit	$3,400	per month
Maintenance	Mixed	$0.15	per unit	$310	per month
Depreciation	Fixed		per unit	$900	per month

--Working

	Behavior	Rate
Direct materials	Variable	1.25	per unit		per month
Direct Labor	Variable	6.58333333333333	per unit		per month
Utilities	Mixed	=+(580-110)/1200	per unit	110	per month
Supervisor's Salary	Fixed		per unit	3400	per month
Maintenance	Mixed	=+(490-310)/1200	per unit	310	per month
Depreciation	Fixed		per unit	900	per month

• [2]

Total Variable cost per unit	$8.37
Total Fixed Cost per month	$4,720

--Working

Total Variable cost per unit	=1.25+6.58+0.39+0.15
Total Fixed Cost per month	=110+3400+310+900

• [3]

Total Cost =

$4,720

+

$8.37

x

• [4]

a	+	b	x	X	=	Y
$4,720	+	$8.37	x	1400	=	$16,438