In: Accounting
Anand Limited manufactures drones for industrial use. Most of their costs are either true variable costs or fixed costs. However, an account analysis shows the following items are mixed costs.
Account | Analysis | 2016 Total Cost |
Production supervision | 80% fixed | $150,000 |
Utilities | 20% fixed | $60,000 |
Sales staff wages | 70% fixed | $200,000 |
Quality control inspections | 90% fixed | $40,000 |
*The 30% variable portion relates to sales commissions based on total sales.
**50% of manufactured units are inspected each year.
In 2016 Anand Limited produced and sold 500 drones at $2,000 each.
Required:
1. Management expects to sell 700 drones in 2017, does not anticipate any cost increases due to inflation, and plans to maintain the sales price of $2,000 per drone. Estimate total costs for each of the mixed cost items above. Be sure to show the variable and fixed components of the total cost.
1Fixed: $150,000 × .8; Variable ($150,000 × .2)/500 × 700
2Fixed: $60,000 × .2; Variable ($60,000 × .8)/500 × 700
3Fixed: $200,000 × .7; Variable ($200,000 × .3)/(500 × $2,000) × (700 × $2,000)
4Fixed: $40,000 x .9; Variable ($40,000 x .1)/(500 x .5) x (700 x .5)
Production supervision = $162,000
Utilities = $79,200
Sales staff wages = $224,000
Quality control inspections = $41,600