The BlueDenim Company makes blue jeans. The company\'s controller wants to calcu

Question

The BlueDenim Company makes blue jeans. The company's controller wants to calculate the fixed and variable costs associated with electricity used in the factory. Data for the past 8 months were collected:

590

Find the high and low number of machine hours. Calculate variable rate of electricity per machine hour, the fixed cost, and construct the cost formula. (Cornerstone 3.2)

Assume that 550 machine hours are budgeted for the month of October. Use the previous cost formula in part a to calculate the total variable electricity cost for October and total electricity cost for October. (Cornerstone 3.3)

Assume 6,500 machine hours are budgeted for the coming year. Use the previous cost formula in question part a to calculate the total variable electricity cost for the year, total fixed electricity cost for the year, and total electricity cost for the coming year. (Cornerstone 3.4)

Scenario 2

The executive team at BlueDenim has requested that you perform an analysis of their factory. In some cases, you will need to rearrange the equations used in question parts a, b, or c to perform the requested analysis. Respond to question parts d - g in this CengageNOW problem regarding the analysis.

Using the same equations you created above in question part b, determine the costs below if the company expects to have 580 machine hours this month.

   1. Total variable costs: $  

   2. Total electricity costs: $  

Using the equations you created in above in question part b, determine the costs below if the company expects to use 400 machine hours this month.

   1. Total variable costs: $  

   2. Total electricity costs: $  

What is the relevant low and high range for machine hours for the cost formula created in question part a?

and  machine hours

Using the equation you created above in question part b, what would the total electricity cost if a new plan from the electricity company executive team reduces the fixed cost to $380 and number of machine hours to 400 hours?
$  

Month Electricity Cost Machine Hours January $3,255 460 February 3,485 500 March 4,100 600 April 3,300 470 May 3,312 470 June 2,575 350 July 3,910 570 August 4,200

590

Explanation / Answer

Scenario 1:

Part I: High number of Machine hours = 590

Low number of Machine hours = 350

Variable rate of electricity per machine hour = (4200 - 2575) / (590 - 350)

= $6.770833

Fixed cost = 4200 - (590 x 6.770833)

= $205.20833

Part II:

Budgeted hours for October = 550

Variable electricity cost for October = 550 x 6.770833 = $3723.96

Total electricity cost for October = 3723.96 + 205.20833 = $3929.17

Part III:

Budgeted hours for the year = 6500

Variable cost for the year = 6500 x 6.770833 = $44010.41

Total electricity cost for October = 44010.41 + (12 x 205.20833) = $46472.91

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