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 2,000
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 the behavior of Shum’s total cost
is:
Multiple Choice
-
Y = $0 + $20X.
-
Y = $20,000 + $17X.
-
Y = $48,000 + $8X.
-
Y = $32,000 + $5X.
-
Y = $56,000 + $6X.
Solutions
Expert Solution
Answer:
| Y = $36,000 + $11X |
| Correct option is not mentioned in the question. |
| Cost formula that expresses the behavior of Shum’s total cost = $36,000 + $11X |
Explain:-
| Type A | Type B | Type C | Total | |
| Cost per unit for 4000 units | $ 5 | $ 8 | $ 7 | $ 20 |
| Multiply: Units produced | 4,000 | 4,000 | 4,000 | 4,000 |
| Total cost for 4000 units | $ 20,000 | $ 32,000 | $ 28,000 | $ 80,000 |
| Cost per unit for 6000 units | $ 5 | $ 7 | $ 5 | $ 17 |
| Multiply: Units produced | 6,000 | 6,000 | 6,000 | 6,000 |
| Total cost for 6000 units | $ 30,000 | $ 42,000 | $ 30,000 | $ 102,000 |
| Total cost for 6000 units | $ 30,000 | $ 42,000 | $ 30,000 | $ 102,000 |
| Less: Total cost for 4000 units | $ 20,000 | $ 32,000 | $ 28,000 | $ 80,000 |
| Difference in cost | $ 10,000 | $ 10,000 | $ 2,000 | $ 22,000 |
| Divided by: Difference in units (6000-4000) | 2,000 | 2,000 | 2,000 | 2,000 |
| Variable cost per unit | $ 5 | $ 5 | $ 1 | $ 11 |
| Variable cost per unit | $ 5 | $ 5 | $ 1 | $ 11 |
| Multiply: Units produced at high level | 6,000 | 6,000 | 6,000 | 6,000 |
| Total variable cost | $ 30,000 | $ 30,000 | $ 6,000 | $ 66,000 |
| Total cost for 6000 units | $ 30,000 | $ 42,000 | $ 30,000 | $ 102,000 |
| Total variable cost | $ 30,000 | $ 30,000 | $ 6,000 | $ 66,000 |
| Fixed cost | $ - | $ 12,000 | $ 24,000 | $ 36,000 |
ekkarill92 answered 1 year agoRelated 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 2,500
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 2,500
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...
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