Mears Production Company makes several products and sells them for an average price of $70. In 2014, Mears’ accountant used two different approaches to estimate the firm’s total monthly cost function, account analysis and high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in June, when production was 1,550 units. The following are the results of that analysis:
| Cost Item | Total Cost | Fixed Cost | Variable Cost |
| Direct materials | $5,580 | $0 | $5,580 |
| Direct labor | $8,060 | $0 | $8,060 |
| Factory overhead | $7,545 | $3,050 | $4,495 |
| Selling expenses | $6,820 | $3,720 | $3,100 |
| Administrative expenses | $3,100 | $3,100 | $0 |
For the high-low method, she developed the cost function using the same data from June and data from August, when production was 2,450 units and total costs were $44,639. After developing the two cost functions, the accountant used them to make predictions for the month of October, when production was expected to be 2,125 units.
REQUIRED [ROUND UNIT COSTS TO THE NEAREST CENT AND TOTAL COSTS TO THE NEAREST DOLLAR.]
Part A (5 tries; 5 points)
1. Using account analysis, what was the accountant’s estimate of total fixed costs for October? 9870
2. Using account analysis, what was the accountant’s estimate of total variable costs for October? 29112.5000
Part B (5 tries; 5 points)
1. Using the high-low method, what was the accountant’s estimate of total fixed costs for October? 7793
2. Using the high-low method, what was the accountant’s estimate of variable costs per unit for October?
NOW I only need the second part of B
Answer for the 2nd Qustion of part B
For the month of Octomber Variable cost 15.04 Per Unit
Working Notes
analyzing each cost item in June, when production was 1,550 units. The following are the results of that analysis:
Direct materials 5580
Direct labor. 8060
Factory overhead 7545
Selling expenses 6820
Administrative expenses 3100
Total $ 31105
production was 2,450 units and total costs were $44,639. After developing the two cost functions, the accountant used them to make predictions for the month of October, when production was expected to be 2,125 units.
High-Low Method Formulas
Variable Cost per Unit
Variable cost per unit (b) is calculated using the following formula:
| Variable Cost per Unit = | y2 − y1 |
| x2 − x1 |
=Y2-Y1/X2-X1
Where,
y2 is the total cost at highest level of activity;
y1 is the total cost at lowest level of activity;
x2 are the number of units/labor hours etc. at highest level of activity; and
x1 are the number of units/labor hours etc. at lowest level of activity
Variable cost = 44639-31105/2450-1550
Variable cost =13534/ 900
Variable cost =15.04 Per Unit
Variable cost for the month of octomber will be 15.04 Per Unit
