Question

Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow.

Units	Total	Total	Total Machine
Produced	Lumber Cost	Utilities Cost	Depreciation Cost
4,000 shelves	$48,000	$5,600	$130,000
8,000 shelves	$96,000	$10,200	$130,000
16,000 shelves	$192,000	$19,400	$130,000
20,000 shelves	$240,000	$24,000	$130,000

1. Determine whether the costs in the table are variable, fixed, mixed, or none of these.

	Variable Cost	Fixed Cost	Mixed Cost	None of these
Lumber
Utilities
Depreciation

2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter "0". Recall that, for N= Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers.

Cost Fixed Portion of Cost Variable Portion of Cost (per Unit)

Lumber $ $

Utilities $ $

Depreciation $ $

Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow.

Month	Number of Units Produced	Total Cost
January	4,360	$65,600
February	225	$6,250
March	1,000	$15,000
April	5,475	$111,250
May	1,750	$32,500
June	3,015	$48,000

1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the High-Low Method. Recall that Total Costs = (Variable Cost Per Unit x Units Produced) + Fixed Cost. Complete the following table.

Total Fixed Cost	Variable Cost per Unit

2. With your Total Fixed Cost and Variable Cost per Unit from the High-Low Method, compute the total cost for the following values of N (Number of Units Produced).

Number of Units Produced	Total Costs
3,500
4,360
5,025

3. Why does the total cost computed for 4,360 units not match the data for January in the table at the top of this panel?

The High-Low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.

The High-Low method only gives accurate data when fixed costs are zero.

The High-Low method gives accurate data only for levels of production outside the relevant range.

The High-Low method is accurate only for months in which production is at full capacity.

Answer 1

• All working forms part of the answer
• Question 1

Working:

Working #1 Lumber Cost
Number of shelves	Total Cost
[A]	[B]	[C = B/A]
4,000 shelves	$                        48,000.00	$                           12.00
8,000 shelves	$                        96,000.00	$                           12.00
16,000 shelves	$                     192,000.00	$                           12.00
20,000 shelves	$                     240,000.00	$                           12.00

Working #2: Utilities Cost
Working		No. of shelves	Total Cost	Variable cost per shelve
		[A]	[B]	[C = B/A]
A	Produced	4000	$           5,600.00
B	Produced	8000	$        10,200.00
C= B - A	Increase in shelve and cost	4000	$           4,600.00	$               1.15
D	Produced	16000	$        19,400.00
E = D - B	Increase in shelve and cost	8000	$           9,200.00	$               1.15
F	Produced	20000	$        24,000.00
G = F - D	Increase in shelve and cost	4000	$           4,600.00	$               1.15

----Requirement 1

	Variable Cost	Fixed Cost	Mixed Cost	None of these
Lumber	Its all Variable cost because per shelve Lumber cost is always $ 12
Utilities			It’s a mixed cost because total cost is increasing when no. of shelves are increasing but the increase is not at a constant rate
Depreciation		It’s a fixed cost because the total cost is not changing when no. of shelves are increasing

---Requirement 2

	Fixed Portion of Cost	Variable Portion of cost (per unit)
Lumber	$                        -	$                 12.00
Utilities	$           1,000.00	$                   1.15
Depreciation	$      130,000.00	$                        -

• Question 2

Working

	Months	Units	Cost
High Level	April	5475	$ 111,250.00
Low Level	February	225	$      6,250.00
Difference		5250	$ 105,000.00

Difference in Cost	$                                 105,000.00
Difference in units	5250
Variable cost per unit	$                                           20.00

Working		High Level	Low Level
A	Total Cost	$   111,250.00	$      6,250.00
B	Total Units	5475	225
C	Variable cost per unit	$              20.00	$            20.00
D = B x C	Total Variable cost	$   109,500.00	$      4,500.00
E = A - D	Total Fixed Cost	$        1,750.00	$      1,750.00

----Requirement 1:

Total Fixed Cost = $ 1,750
Variable cost per unit = $ 20 per unit.

----Requirement 2:

Number of Units	Variable cost per unit	Total Variable cost	Fixed Cost total	Total COST
[A]	[B = $20]	[C = A x B]	[D]	[E = C+D]
3500	$      20.00	$       70,000.00	$      1,750.00	$    71,750.00
4360	$      20.00	$       87,200.00	$      1,750.00	$    88,950.00
5025	$      20.00	$     100,500.00	$      1,750.00	$ 102,250.00

---Requirement 3

The total cost computed for 4,360 units not match the data for January in the table at the top of this panel BECAUSE:

The High-Low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.