The managerial accountant at Fast and Mean Manufacturing reported that the organ
ID: 2397612 • Letter: T
Question
The managerial accountant at Fast and Mean Manufacturing reported that the organization contains an automated production line to manufacture and produce its products for consumers to enjoy in the marketplace. The managerial accountant reported that the company uses the high-low method to estimate the costs in the new budget. The managerial accountant reported the following information:
Month
Total Machine-Hours
Total Costs
January
250,000
$5,500,000
February
248,000
$5,260,000
March
249,000
$5,400,000
April
248,000
$5,220,000
May
238,000
$5,180,000
June
230,000
$5,130,000
Compute the slope of the mixed cost, or the variable cost per unit of activity.
Compute the vertical intercept, or the fixed cost component of the mixed cost.
What is the mixed cost equation?
Month
Total Machine-Hours
Total Costs
January
250,000
$5,500,000
February
248,000
$5,260,000
March
249,000
$5,400,000
April
248,000
$5,220,000
May
238,000
$5,180,000
June
230,000
$5,130,000
Explanation / Answer
As per high-low method, Variable cost per unit = (Total Cost at highets level-total cost at lowest level)/(Highest level of activty-Lowest level of activity) = (5500000-5130000)/(250000-230000) = $ 18.50 Now fixed cost is calculated as follows, Either at Higest level or at Lowest Level Total Cost $ 55,00,000 $ 51,30,000 Less Variable cost $ 46,25,000 $ 42,55,000 (250000*18.50) (230000*18.50) Fixed Costs $ 8,75,000 $ 8,75,000 So, The slope of the mixed cost, or the variable cost per unit is $ 18.50 per machine hour, Vertical intercept, or the fixed cost component of the mixed cost is $ 8,75,000 and Mixed Cost equation = Fixed Cost + (Variable cost per unit x Total Units of activity ) or, Y = a+bx Where, Y Total cost at level of activity a Fixed Costs b Variable cost per unit x Units of actiivty
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