You are made the controller of jenlo company which makes dolls for children. An

Question

You are made the controller of jenlo company which makes dolls for children. An estimate of costs at diffrent levels of activity are shown above:

1. Derive a cost forecasting fromula for each in the format Y=mx+b

2.Derive a cost forecasting fromula for the company as a whole.

3. What is the total forecasting cost if the company makes 6,000 dolls.

4.Assume the company makes and sells 6,000 dolls at a unit selling price of $80, what is the expected profit?

1000 dolls 2000 dolls 3000 dolls 4000 dolls Direct material $7,000 $14,000 $21,000 $28,000 Direct labor $15,000 $30,000 $45,000 $60,000 Maintenance and Repair, machinery $12,000 $20,000 $28,000 $36,000 Salaries $40,000 $40,000 $40,000 $40,000 Utilities $7000 $12,000 $17,000 $22,000 Rent $3000 $3000 $3000 $3000

Explanation / Answer

Variable Maintenance and Repair Expenses = (20,000-12,000)/(2,000-1,000)

= 8,000/1,000

= $8 per unit

Fixed Maintenance and Repair Expenses = 12,000 - (1,000*8)

= $4,000

..

..

Variable Utilities Expense = (12,000-7,000)/(2,000-1,000)

= 5,000/1,000

= $5 per unit

Fixed Utilities Expense = 7,000 - (1,000*5)

= $2,000

..

..

Direct Labor per unit = 15,000/1,000

= $15 per unit

Direct Material per unit = 7,000/1,000

= $7 per unit

..

Total Variable expense per unit = Direct Material + Direct Labor +Variable Maintenance and Repair Expenses + Variable Utilities Expense

= 7 +15+8+5

= $35 per unit

..

Total Fixed Expense = Salaries + Rent +Fixed Maintenance and Repair Expenses + Fixed Utilities Expense

= 40,000 + 3,000 + 4,000 + 2,000

= $49,000

..

1. Derive a cost forecasting fromula for each in the format Y=mx+b

Ans:-" x" = No of units

..

..

2.Derive a cost forecasting fromula for the company as a whole

Ans ) Total Cost for the COmpany as a Whole (Y) = 35x + 49,000

..

..

..

3. What is the total forecasting cost if the company makes 6,000 dolls

Ans) The total forecasting cost if the company makes 6,000 dolls = 6,000*35 + 49,000

= $259,000

..

..

..

4)Assume the company makes and sells 6,000 dolls at a unit selling price of $80, what is the expected profit?

Ans)Expected Profit = (6,000*80) - 259,000

= $221,000

Direct material (Y) y = 7x + 0 Direct labor(Y) y = 15x + 0 Maintenance and Repair, machinery(Y) y = 8x + 4,000 Salaries(Y) y = 0x + 40,000 Utilities(Y) y = 5x + 2,000 Rent(Y) y = 0x + 3,000

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