five tries for each part (not for each individual question). Mears Production Co
ID: 2334909 • Letter: F
Question
five tries for each part (not for each individual question). Mears Production Company makes several products and sells them for an average price of $75. Mears' accountant is considering two different approaches to estimating the firm's total monthly cost function, account analysis and high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in June, when production was 1,550 units. The following are the results of that analysis: Cost Item Direct materials Direct labor Factory overhead Selling expenses Administrative expenses Total expenses Total Cost $6,665 $7,595 $7,025 $6,325 $4,800 $32,410 Variable Cost $6,665 $7,595 $3,875 $2,945 $0 $21,080 Fixed Cost s0 $0 S3,150 53,380 $4,800 $11,330 For the high-low method, she developed the cost function using the same data from June and data from May, when production was 2,450 units and total costs were $45,876 After developing the two cost functions, the accountant used them to make predictions for the month of October, when production was expected to be 2,225 units. REQUIRED [ROUND UNIT COSTS TO THE NEAREST CENT AND TOTAL COSTS TO THE NEAREST DOLLAR.] Part A (5 tries; 5 points) 1. Using account analysis, what was the accountant's estimate of total fixed costs for October? 2. Using account analysis, what was the accountant's estimate of variable costs per unit for October? Submit Answer Tries 0/5 Part B (5 tries; 5 points) 1. Using the high-low method, what was the accountant's estimate of total fixed costs for October? 2. Using the high-low method, what was the accountant's estimate of for October? Submit Answer Tries 0/5Explanation / Answer
1.
Fixed costs remain constant in total regardless of the change in the number of units produced.
Total fixed costs for June = Factory overhead + Selling expenses + Administrative expenses
= 3,150 + 3,380 + 4,800
= 11,330
Total fixed costs for October = Total fixed costs for June
= 11,330
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2.
Variable costs per unit remains constant regardless of the change in the number of units produced.
Variable cost per unit for Direct materials = 6,665 / 1,550 = 4.3
Variable cost per unit for Direct labour = 7,595 / 1,550 = 4.9
Variable cost per unit for Factory overhead = 3,875 / 1,550 = 2.5
Variable cost per unit for Selling expenses = 2,945 / 1,550 = 1.9
Total variable costs per unit for June= Direct materilas per unit + Direct labour per unit + Factory overhead per unit + Selling expenses per unit
= 4.3 + 4.9 + 2.5 + 1.9
= 13.6
Variable costs per unit for October = Variable costs per unit for June
= 13.6
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