- The managerial accountant at Sunny Manufacturing needs to determine how many costs are fixed costs and how many costs are variable costs in the organization. The managerial accountant reported the following information:
January – June 20XXMonthMachine-HoursTotal CostsJanuary1,800$21,500February2,900$23,200March1,000$19,750April2,400$21,000May3,400$23,900
Use the high-low method to determine the cost equation and use machine hours as the base for a cost driver in the analysis.
- The controller for Camden’s Bike Shop has gathered the following cost and activity level information:
Average total cost per unit$225.00Production level used to calculate average cost1,000Total fixed costs$80,000
- What is the total cost of producing 1,000 racing bicycles?
- What is the variable cost of producing each racing bicycle?
- Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?
- If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles?
- Is there a difference between the forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?
- The managerial accountant at Fast and Mean Manufacturing reported that the organization contains an automated production line to manufacture and produce its products for consumers to enjoy in the marketplace. The managerial accountant reported that the company uses the high-low method to estimate the costs in the new budget. The managerial accountant reported the following information:
Month Total Machine-Hours Total CostsJanuary250,000$5,500,000February248,000$5,260,000March249,000$5,400,000April248,000$5,220,000May238,000$5,180,000June230,000$5,130,000
- Compute the slope of the mixed cost, or the variable cost per unit of activity.
- Compute the vertical intercept, or the fixed cost component of the mixed cost.
- What is the mixed cost equation?