A department of Omega Co. incurred the following costs for the month of July. Va

Question

A department of Omega Co. incurred the following costs for the
month of July. Variable costs, and the variable portion of mixed costs, are a function of
the number of units of activity:
Activity level in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000
Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Mixed costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Total costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $120,000
During August the activity level was 16,000 units, and the total costs incurred were
$141,000.

Required:
a. Calculate the variable costs, ?xed costs, and mixed costs incurred during
August.
b. Use the high

Explanation / Answer

a. fixed costs = $60,000 Variable costs = 16,000*2 per unit = $32,000 (we know they are $2 per unit because July variable costs were $20,000 and there were 10,000 units; $20,000/10,000 = $2 per unit) mixed = 141,000 - 60,000 - 32,000 = $49,000 b. Slope: (49,000 - 40,000)/(16,000 - 10,000) = 9000/6000 = $1.50 per unit intercept (using low figures): $40,000 = 10,000 units *1.5 per unit + intercept $40,000 = $15,000 + intercept intercept = $25,000 Cost formula: Cost = $1.50/unit * x units + $25,000

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