Question

1. Presented below is the production data for six months showing the mixed costs incurred by North Company.

Month   Cost   Units
July   $5,890   4,100
August   $4,012   3,200
September   $7,480   6,300
October   $9,000   7,500
November   $5,800   5,800
December   $7,336   6,600

North Company uses the high-low method to analyze mixed costs. The cost function is ________ where Y= Total Cost and X= Number of units.
A) Y = $440 + $1.12X
B) Y = $440 + $1.20X
C) Y = $300 + $1.16X
D) Y = $7,850 + $0.132X

2.

Slocum Company has determined the following information about a new product. The manufacturing process used for the product is very complex and it has a higher proportion of indirect costs than direct costs. The company wants a 100% markup on cost. The following data is available:

Product cost according to traditional costing system   $4.00 per unit
Product cost according to activity-based costing system   $7.00 per unit

What price per unit should Slocum Company use for this new product?
A) $4.00
B) $7.00
C) $8.00
D) $14.00

Answer 1

1

Answer: The cost function is = Y = $300 + $1.16X

Working notes for the above answer is as unde

using August and Octomber.

Unit variable

= ($9000-4012)/(7,500 -3,200)

= $1.16.

Unit variable =$1.16 varible cost per unit

Fixed cost

= $9,000 -(7,500 x $1.16)

= $300.

= $4012 -(3200 x $1.16)

= $300

SO The cost function is = Y = $300 + $1.16X

_______________________________________________________

2

Answer: price per unit =$14

Working notes for the above answer is as under

Activity based costing helps calculating the correct cost of units produced by complex processes, hence cost of goods ascertained by ABC system will be taken as the cost of units produced.

Product cost according to activity-based costing system	7
Add: Mark Up (100%x7)	7
Price	14