Question

Morning Dove Company manufactures one model of birdbath, which is very popular. Morning Dove sells all units it produces each month. The relevant range is 0–1,600 units, and monthly production costs for the production of 1,200 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.   

Production Costs	Total Cost
Direct materials	$	3,100
Direct labor		7,100
Utilities ($130 fixed)		590
Supervisor’s salary		3,500
Maintenance ($310 fixed)		540
Depreciation		850

Required:
1. Identify each cost as variable, fixed, or mixed, and express each cost as a rate per month or per unit (or combination thereof). (Round your per unit value to 2 decimal places.)



2. Determine the total fixed cost per month and the variable cost per unit for Morning Dove. (Round your variable cost per unit to 2 decimal places.)



3. State Morning Dove’s linear cost equation for a production level of 0–1,600 units. Enter answer as an equation in the form of y = a + bx. (Round your variable cost per unit to 2 decimal places.)



4. Calculate Morning Dove’s expected total cost if production increased to 1,400 units per month. Enter answer as an equation in the form of y = a + bx. (Round Variable cost per unit to 2 decimal places.)

Answer 1

Solution:

1.

Identify each cost as variable, fixed, or mixed and express each cost as a rate per month or per unit.

	Production Costs	Type	Unit Per Cost	Cost    per month
	Direct Materials	Variable cost	$3,100/1200=$2.58	-
	Direct Labour	Variable cost	7,100/1200=$5.92	-
	Utilities	Mixed Cost	[($590-$130)/1200]=$0.38	$130
	Supervisor's Salary	Fixed cost	-	$3,500
	Maintenance	Mixed Cost	[($540-$310)/1200]=$0.19	$310
	Depreciation	Fixed cost	-	$850

2.

Calculate the total fixed cost per month and variable cost per month

Total Fixed Cost per month= $130+ $3,500+ $310 + $850 Total Fixed Cost per month = $4,790

Total Variable Cost per unit=$2.58 + $5.92+ $0.38 + $0.19 Total Variable Cost per unit=$9.07 per unit

3.

Linear cost equation as follows:

Y=a + bx

a = Fixed Cost = $4,790

b=Variable cost = $9.07

Y = $4,790+ $9.07x

4.

Morning Dove’s expected total cost if production increased to 1,400 units per month.

Y = $4,790+ $9.07x

Y = $4,790+ $9.07*1,400

Y= $17.488