Question

Mears Production Company makes several products and sells them for an average price of $85. Mears' accountant is considering two different approaches to estimating the firm's total monthly cost function, account analysis and high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in June, when production was 1,750 units. The following are the results of that analysis:

Cost Item	Total Cost	Variable Cost	Fixed Cost
Direct materials	$7,700	$7,700	$0
Direct labor	$8,400	$8,400	$0
Factory overhead	$9,215	$6,125	$3,090
Selling expenses	$6,895	$2,975	$3,920
Administrative expenses	$4,150	$0	$4,150
Total expenses	$36,360	$25,200	$11,160

For the high-low method, she developed the cost function using the same data from June and data from May, when production was 2,450 units and total costs were $47,722.

After developing the two cost functions, the accountant used them to make predictions for the month of December, when production was expected to be 2,275 units.

REQUIRED [ROUND UNIT COSTS TO THE NEAREST CENT AND TOTAL COSTS TO THE NEAREST DOLLAR.]

Part A (5 tries; 5 points)
1. Using account analysis, what was the accountant's estimate of total fixed costs for December?    

2. Using account analysis, what was the accountant's estimate of variable costs per unit for December?   

Tries 0/5

Part B (5 tries; 5 points)
1. Using the high-low method, what was the accountant's estimate of total fixed costs for December?    

2. Using the high-low method, what was the accountant's estimate of total variable costs for December?

Answer 1

Answer Part A 1:

Using accounting analysis for June, accountant's estimate of total fixed costs = $11,160

Fixed costs remains same within relevant rage.

Hence:

Using account analysis, accountant's estimate of total fixed costs for December = $11,160

Answer Part A 2:

Accountant's estimate of variable costs per unit = June variable cost / June production units = $25,200 / 1,750= $14.40

Per unit variable cost remains same.

Hence:

Using account analysis, accountant's estimate of variable costs per unit for December = $14.40

Answer Part B 1:

Using high-low method:

Variable cost per unit = 11362 / 700 = $16.23143

Fixed cost = 47722 - 2450 * 16.23143 = $7,955

Using the high-low method, accountant's estimate of total fixed costs for December = $7,955

Answer Part B 2:

Using the high-low method, the accountant's estimate of total variable costs for December = 2275 * 1.62143 = $36,926.50

Using the high-low method, the accountant's estimate of total variable costs for December = $36,926.50

(NOTE: there is no instruction on rounding off; hence no rounding off is done)