Question

In: Accounting

Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three...

Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 7,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below.

Type A Type B Type C Total
5,000 units $ 23 $ 66 $ 23 $ 112
7,500 units 23 44 22 89


If Shum produces 7,000 units, the total cost would be:

Multiple Choice

  • $552,500.

  • $645,000.

  • $646,000.

  • $860,000.

  • None of the answers is correct.

Solutions

Expert Solution

Type A is a variable cost as per unit cost remain constant
Type-B is a fixed cost as the total fixed cost is $ 330,000 at both the level
Type-C is mixed cost to be apportioned as per High low method:
Units Cost
High -7500 units 7500 165000
Low-5000 units 5000 115000
Change 2500 50000
Variable cost of Type -C per unit = Change in cost / Change in unit
50000 /2500 = 20 per unit
Fixed cost of Type-C:
Total cost at high activity 165000
Less: variable cost (7500*20) 150000
Fixed cost of Type-C: 15000
Total cost at 7000 units:
Type-A (7000*23) 161000
Type-B 330000
Type-C variable 140000
Type-C Fixed 15000
Total cost at 7000 units: 646000
Answer is $ 646,000

Related Solutions

Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three...
Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 7,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below. Type A Type B Type C Total 5,000 units $ 23 $ 66 $ 23 $ 112 7,500 units 23 44 22 89 If Shum produces 7,000 units,...
Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three...
Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,700 units and 12,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below. Type A Type B Type C Total 5,400 units $ 4 $ 7 $ 5 $ 16 8,100 units 5 9 4 18 The cost formula that expresses...
Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three...
Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,000 units and 15,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below. Type A Type B Type C Total 4,000 units $ 5 $ 8 $ 7 $ 20 6,000 units 5 7 5 17 The cost formula that expresses...
Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three...
Shum Manufacturing, which uses the high-low method, makes a product called Kwan. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 7,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below. Type A Type B Type C Total 5,000 units $ 16 $ 45 $ 16 $ 77 6,500 units 16 30 15 61 If Shum produces 7,000 units,...
Ritchie Manufacturing Company makes a product that it sells for $130 per unit. The company incurs...
Ritchie Manufacturing Company makes a product that it sells for $130 per unit. The company incurs variable manufacturing costs of $66 per unit. Variable selling expenses are $12 per unit, annual fixed manufacturing costs are $450,000, and fixed selling and administrative costs are $226,000 per year. Required Determine the break-even point in units and dollars using each of the following approaches: Use the equation method. Use the contribution margin per unit approach. Prepare a contribution margin income statement for the...
Ritchie Manufacturing Company makes a product that it sells for $140 per unit. The company incurs...
Ritchie Manufacturing Company makes a product that it sells for $140 per unit. The company incurs variable manufacturing costs of $73 per unit. Variable selling expenses are $11 per unit, annual fixed manufacturing costs are $468,000, and fixed selling and administrative costs are $271,200 per year. Required Determine the break-even point in units and dollars using each of the following approaches: Use the equation method. Use the contribution margin per unit approach. Prepare a contribution margin income statement for the...
Ritchie Manufacturing Company makes a product that it sells for $190 per unit. The company incurs...
Ritchie Manufacturing Company makes a product that it sells for $190 per unit. The company incurs variable manufacturing costs of $96 per unit. Variable selling expenses are $18 per unit, annual fixed manufacturing costs are $462,000, and fixed selling and administrative costs are $260,000 per year. Required Determine the break-even point in units and dollars using each of the following approaches: Use the equation method. Use the contribution margin per unit approach. Prepare a contribution margin income statement for the...
High-Low Method The manufacturing costs of Ackerman Industries for the first three months of the year...
High-Low Method The manufacturing costs of Ackerman Industries for the first three months of the year follow: Total Costs Units Produced January $241,920 945 units February 278,210 2,070 March 376,320 3,045 Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost. Round all answers to the nearest whole dollar. a. Variable cost per unit $ b. Total fixed cost
High-Low Method The manufacturing costs of Ackerman Industries for the first three months of the year...
High-Low Method The manufacturing costs of Ackerman Industries for the first three months of the year follow: Total Costs Units Produced January $465,670 3,260 units February 319,680 1,850 March 497,280 5,550 Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost. Round all answers to the nearest whole dollar. a. Variable cost per unit $ b. Total fixed cost $
1. High-Low Method for a Service Company Boston Railroad decided to use the high-low method and...
1. High-Low Method for a Service Company Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed “gross-ton miles,” which is the total number of tons multiplied by the miles moved. Transportation Costs Gross-Ton Miles January $854,100 325,000 February 952,200 363,000 March 673,000 235,000 April 913,000 351,000 May 765,700...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT