Fahrenheit Company manufactures a product that requires the use of a considerabl
ID: 2462490 • Letter: F
Question
Fahrenheit Company manufactures a product that requires the use of a considerable amount of natural gas to heat it to a desired temperature. The process requires a constant level of heat, so the furnaces are maintained at a set temperature for 24 hours a day. Although units are not continuously processed, management desires that the variable cost be charged directly to the product and the xed cost to the factory overhead. The following data have been collected for the year: DBA C HGFE LO2 222 Principles of Cost Accounting Units Cost Units Cost January . . . . . . . . . . . . . . 2,400 $4,400 July ............. 2,200 $4,400 February .............. 2,300 4,300 August . . . . ...... 2,100 4,100 March ................ 2,200 4,200 September . . . . . . 2,000 3,800 April .................. 2,000 4,000 October ......... 1,400 3,400 May .................. 1,800 3,800 November . .. .. .. 1,900 3,700 June . . . .............. 1,900 3,900 December . . ..... 1,800 4,050 Required: 1. Separate the variable and xed elements, using the high-low method. 2. Determine the cost to be charged to the product for the year. (Hint: First determine the number of annual units produced.) 3. Determine the cost to be charged to factory overhead for the year.
Explanation / Answer
Solution.
1. Separation of the variable and xed elements, using the high-low method.
at highest activity: x2 = 2,400; y2 = $4,400
at lowest activity: x1 = 1,400; y1 = $3,400
Variable Cost per Unit = ($4,400 $3,400 ) ÷ (2,400 1,400) = $1 per unit
Total Fixed Cost = $4,400 ($1 × 2,400) =$3,400 ($1 × 1,400) = $20,000
Cost Volume Formula: y = $20,000 + 1x.
2.Cost to be charged to the product for the year
Particular Unit Per unit Amount Variable Cost 24,000 1 24,000 Fixed Cost 24,000 20,000 Cost to be charged 44,000Related Questions
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