1) Macy Co manufactures ofice furniture. During the most productive month of the

Question

1) Macy Co manufactures ofice furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $84,400. In the slowest month, the company made 1,100 desks at a cost of $46,000. Find the fixed costs for the month and variable cost per unit.

2) Budgets are prepared for income, and various cash expenses and expenditures. May a budget be prepared for a balance sheet and why?

3) What are the TWO options to close the variance accounts at year-end prior to closing expenses and revenue to income summary?

1.

2.

Explanation / Answer

High Low method

Variable Cost per Unit = y2 y1/ x2 x1

Where,

y2 is the total cost at highest level of activity = 84400

y1 is the total cost at lowest level of activity = 46000

x2 are the number of units at highest level of activity = 3500

x1 are the number of units at lowest level of activity = 1100

Let’s put all the values in the formula

Variable Cost per Unit = 84400 – 46000/3500 – 1100

                                          = 38400/2400

                                          = 16

Variable cost = 16 per unit

When 3500 units are being produced then variable cost will be = 3500 * 16 = 56000

Fixed cost = Total cost – variable cost

                     = 84400 – 56000

                     = $28400

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