Question

In: Accounting

The following data have been extracted from the records of Puzzle, Inc.: February August Production level,...

The following data have been extracted from the records of Puzzle, Inc.:

	February		August
Production level, in units		11,800		25,960
Variable costs	$	33,040	$	?
Fixed costs		?		32,500
Mixed costs		29,120		?
Total costs	$	94,660	$	161,212

Required:

a. Calculate the missing costs. (Do not round intermediate calculations.)

b. Calculate the cost formula for mixed cost using the high-low method. (Do not round intermediate calculations. Round "Variable cost" to 2 decimal places.)

cost formula _____ + _____ per unit

c. Calculate the total cost that would be incurred for the production of 16,949 units. (Do not round intermediate calculations.)

Total cost ____

d. Identify the two key cost behavior assumptions made in the calculation of your answer to part c.

cost behavior pattern is ____ relevant range ____

Expert Solution

Answer a.

February:

Production level = 11,800 units

Variable Costs = $33,040
Variable Costs per unit = $33,040 / 11,800
Variable Costs per unit = $2.80

Fixed Costs = $32,500

Mixed Costs = $29,120

August:

Production level = 25,960 units

Variable Costs per unit = $2.80
Variable Costs = $2.80 * 25,960
Variable Costs = $72,688

Fixed Costs = $32,500

Mixed Costs = Total Costs - Variable Costs - Fixed Costs
Mixed Costs = $161,212 - $72,688 - $32,500
Mixed Costs = $56,024

Answer b.

Mixed Costs:

Variable Cost per unit = (Mixed Costs, August - Mixed Costs, February) / (Production level, August - Production level, February)
Variable Cost per unit = ($56,024 - $29,120) / (25,960 - 11,800)
Variable Cost per unit = $1.90

Fixed Costs = Mixed Costs, August - Variable Cost per unit * Production level, August
Fixed Costs = $56,024 - $1.90 * 25,960
Fixed Costs = $6,700

Cost Formula = $6,700 + $1.90 per unit

Answer c.

Variable Cost per unit = $2.80 + $1.90
Variable Cost per unit = $4.70

Fixed Costs = $32,500 + $6,700
Fixed Costs = $39,200

Total Cost for 16,949 units = $39,200 + $4.70 * 16,949
Total Cost for 16,949 units = $118,860

Answer d.

Cost behaviour pattern is linear. Relevant range does not change.

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