The J. Page Furniture Company has the following information available regarding
ID: 2453699 • Letter: T
Question
The J. Page Furniture Company has the following information available regarding costs at various levels of monthly production:
Production volume (units)
16,000 Units
22,000 Units
Direct materials
$70,000
$100,000
Direct labor
66,000
90,000
Indirect materials
21,000
30,000
Supervisors’ salaries
12,000
12,000
Depreciation on plant and equipment
10,000
10,000
Maintenance
32,000
44,000
Utilities
15,000
21,000
Insurance on plant and equipment
1,600
1,600
Property taxes on plant and equipment
2,000
2,000
Total
$229,600
$310,600
Develop an equation for total monthly production costs using the high-low method of cost estimation, and predict total costs for a monthly production volume of 18,000 units.
Production volume (units)
16,000 Units
22,000 Units
Direct materials
$70,000
$100,000
Direct labor
66,000
90,000
Indirect materials
21,000
30,000
Supervisors’ salaries
12,000
12,000
Depreciation on plant and equipment
10,000
10,000
Maintenance
32,000
44,000
Utilities
15,000
21,000
Insurance on plant and equipment
1,600
1,600
Property taxes on plant and equipment
2,000
2,000
Total
$229,600
$310,600
Explanation / Answer
Variable cost per unit = 81,000/6000 = $13.5 per unit
Variable cost at 22000 units = 22000*13.5 = $297,000
Fixed cost = $310,600 - $297,000 = $13,600
Equation
y = a + bx
Y = total cost
a = fixed cost
b = variable cost per unit
x = units
At 18,000 units
total cost y = 13,600 + 18,000*13.5
y = $256,600
Units Costs High 22,000 $310,600 Low 16,000 $229,600 Difference 6,000 $81,000Related Questions
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