Question

1. Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the The manner in which a cost changes in relation to its activity base (driver).cost behavior. After reviewing the data, complete requirements (1) and (2) that follow.

   Units Produced	Total Lumber Cost	Total Utilities Cost	Total Machine Depreciation Cost
   3,000 shelves	$36,000	$4,950	$145,000
   6,000 shelves	72,000	8,400	145,000
   12,000 shelves	144,000	15,300	145,000
   15,000 shelves	180,000	18,750	145,000

   1. Determine whether the costs in the table are Costs that vary in proportion to changes in the activity base.variable, Costs that tend to remain the same in amount, regardless of variations in the level of activity.fixed, Costs with both variable and fixed characteristics, sometimes called semivariable or semifixed costs.mixed, or none of these.

   Lumber	Variable Cost Variable Cost Fixed Cost Mixed Cost None of these
   Utilities	Mixed Cost Variable Cost Fixed Cost Mixed Cost None of these
   Depreciation	Fixed Cost Variable Cost Fixed Cost Mixed Cost None of these

   2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter "0". Recall that, for N = Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost (per unit) answers to two decimal places.

   Cost	Fixed Portion of Cost	Variable Portion of Cost (per Unit)
   Lumber	$	$
   Utilities
   Depreciation

   High-Low

   Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow.

   	Units Produced		Total Cost
   January	4,360	units	$65,600
   February	275		6,250
   March	1,000		15,000
   April	8,775		133,750
   May	1,750		32,500
   June	3,015		48,000

   1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table.

   Total Fixed Cost	Variable Cost per Unit
   $ 2,125	$ 15

   2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced).

   Number of Units Produced	Total Cost
   3,500	$
   4,360
   8,775

Answer 1

Cover-to-Cover Company

1.

Lumber	Variable Cost
Utilities	Mixed Cost
Depreciation	Fixed Cost

2.

Cost	Fixed Portion of Cost	Variable Portion of Cost (per unit)
Lumber	$ -	$                                                         12.00
Utilities	$ 1,500	$                                                           1.15
Depreciation	$                         145,000	$ -

Utilities:

Variable cost = ($18750 - $4950)/(15000 - 3000) = $13800/12000 = $1.15

Fixed cost (at high level) = $18750 - (15000 x $1.15) = $18750 - $17250 = $1500

Fixed cost (at low level) = $4950 - (3000 x $1.15) = $4950 - $3450 = $1500

Biblio Files Company

1.  

Total Fixed Cost	Variable Cost per Unit
$                                         2,125	$                                     15

Variable cost per unit = ($133750 - $6250)/(8775 - 275) = $127500/8500 = $15

Fixed cost (at high level) = $133750 - (8775 x $15) = $133750 - $131625 = $2125

Fixed cost (at low level) = $6250 - (275 x $15) = $6250 - $4125 = $2125

2.

Number of Units Produced	Total Costs	Working
3500	$                             54,625	[$2125 + (3500 x $15)]
4360	$                             67,525	[$2125 + (4360 x $15)]
4775	$                             73,750	[$2125 + (4775 x $15)]