Question 1: Mixed Costs-15 Minutes, 17 Marks Jensen Company accumulates the foll

Question

Question 1: Mixed Costs-15 Minutes, 17 Marks Jensen Company accumulates the following data concerning a mixed cost, using units produced as the activity level: Month Units Produced Total Cost January February March April May 8,500 6,800 7,000 7,600 9,100 $ 12,500 9,200 9,000 10,900 11,600 Required: Using the high-low method, calculate: 1. The variable shipping cost per unit 2. The fixed shipping cost per month 3. Provide the total cost formula expressed in a linear equation 4. Using your cost formula, estimate the total cost if the company produces 6,000 units.

Explanation / Answer

Calculation of Variable shipping cost per unit Variable shipping cost per unit = (y2 - y1) / (x2 - x1) y2 is the total shipping cost at highest units produced = $11600 y1 is the total shipping cost at lowest units produced =$9200 x2 are the number of units produced at highest level of activity = 9100 x1 are the number of units produced at lowest level of activity = 6800 Variable shipping cost per unit = (11600 - 9200) / (9100 - 6800) = $1.04 per unit Calculation of fixed shipping cost per month Total fixed cost is calculated by subtracting total variable cost from total cost. Total Fixed cost = y2 - bx2 y2 is the total shipping cost at highest units produced = $11600 x2 are the number of units produced at highest level of activity = 9100 b = variable cost per unit = $1.04 Total Fixed cost = $11600 - ($1.04*9100 units) = $2104.35 Total Cost formula y = $2104.35 + $1.04x y = total cost x = no.of units produced The total cost if company produces 6000 units y = $2104.35 + 1.04x y = total cost = ? x = no.of units produced = 6000 y = $2104.35 + ($1.04*6000) = $8,365.22

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