(CBA UOS osl Final Exam Question 3: (5 marks) a. Presented below is the producti
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(CBA UOS osl Final Exam Question 3: (5 marks) a. Presented below is the production data for the first six months of the year showing the incurred by Brooklyn Company mixed costs Month Cost Units July August $7,500 11,250 1,500 11,700 13,500 12,850 4,000 9,500 9,000 10,500 12,000 10,000 October November Brooklyn Company uses the high-low method to analyze mixed costs. Calculate the total cost at an operating level of 10,000 units? b. Simba Company makes metal signs for businesses and residences. These signs are made of sheet metal, which the owner paints by hand. The owner has a good sense of his labor and materials cost behavior, but he is concerned that he does not have good measure of other support costs. Currently, he predicts support costs to be 40% of the cost of materials. Close investigation of the business reveals that $50 per direct labor hour is a more plausible and reliable support cost relationship. Consider estimated support costs of the following two signs that Simba Company makes. Small Sign Large Sign $200 Materials cost Direct labor hours Support costs $500 What is the amount of support costs assigned to the Small and Large Sings using direct labor hours as the cost driver?Explanation / Answer
Answer to Question 3-a)
As per High-Low method, Variable cost per unit is:
Variable Cost per unit = (y2 – y1) / (x2 – x1)
y2 = Total Cost at Highest level of activity = $13,500
y2 = Total Cost at Lowest level of activity = $7,500
x2 = Units at Highest level of activity = 12,000
x1 = Units at Lowest level of activity = 4,000
Variable Cost per unit = (13,500 – 7,500)/ (12,000 – 4,000)
Variable Cost per unit = 6,000 / 8,000
Variable Cost per unit = $0.75
Calculation of Fixed Cost:
Total Cost = $13,500
Units = 12,000 units
$13,500 = ($0.75 * 12,000) + Fixed Cost
$13,500 = $9,000 + Fixed Cost
Fixed Cost = $4,500
Total Cost at an Operating level of 10,000 units= (10,000 * $0.75) + $4,500
Total Cost at an Operating level of 10,000 units= $7,500 + $4,500
Total Cost at an Operating level of 10,000 units= $12,000
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