Question

The following data have been extracted from the records of Puzzle, Inc.:

	February				August
Production level, in units		10,500				15,750
Variable costs	$	27,300			$	?
Fixed costs		?				36,700
Mixed costs		23,240				?
Total costs	$	87,240			$	109,710

Required:

a. Calculate the missing costs. (Do not round intermediate calculations.)

b. Calculate the cost formula for mixed cost using the high-low method. (Do not round intermediate calculations. Round "Variable cost" to 2 decimal places.)

c. Calculate the total cost that would be incurred for the production of 12,600 units. (Do not round intermediate calculations.)

d. Identify the two key cost behavior assumptions made in the calculation of your answer to part c.

Answer 1

a.

	Feb
Total costs	87240
Less
Variable costs	27300
Mixed costs	23240
Fixed costs	36700

Production	10500
Variable cost per unit	2.6

Variable costs for 15750 units = 2.6 * 15750= 40950

Mixed costs inAugust:

	Aug
Total costs	109710
Less
Variable costs	40950
Fixed costs	36700
Mixed costs	32060

b.

	High	Low	Difference
Production	15750	10500	5250
Mixed costs	32060	23240	8820
Per unit			1.68
Variable portions	26460	17640
Fixed portion	5600	5600

c.

		Amount
		Per unit	Total
Production			12600
Variable cost		2.6	32760
Mixed cost:
Variable portion		1.68	21168
Fixed portion			5600
Fixed costs			36700
Total costs			96228

d.

Assumed that variable cost per unit remain fixed.

Assumed that fixed costs do not change with in the given production level.