Question

Use the following information to answer question 17 through 19: 17. Doherty & Puthoff, Inc. produces quality BGSU hats for fashion-conscious students. During the year, its highest and lowest production levels occurred in April and October, respectively. In April, it produced 6,000 units at a total cost of $120,000. In October, it produced 2,000 units at a total cost of $80,000. Using the high/low method of estimating costs, the average variable cost of producing a hat would be: a. $10.00 b. $15.71 c. $24.29 d. $36.80 e. None of the above. The correct answer is: 18. Based upon the high-low analysis above, and after determining the expected fixed cost associated with this fact pattern, the “Cost Formula” (expressed on pg 75; Y = A +bX ) to be used would be (show work below): Total Cost Formula (Y) = 19. Using your cost formula determined above, what would the total expected cost be if company management plans to produce 4,880 units next month? Show your work and circle your answer. Total Predicted Cost (Y)=

Answer 1

17)	Units Produced	Total Cost
Highest	6000	$  120,000.00
Lowest	2000	$    80,000.00
Difference	4000	$    40,000.00
Variable cost per unit = $40,000/4000	$                    10.00	per unit
18)
Fixed Cost : $120,000 - (6000 x $10)	$             60,000.00
Total Cost (Y) = $60,000 + $10 X
19)
Total predicted Cost = $60,000 + ($10 x 4880 units)	$           108,800.00
20)
# of Study Guides	3000	4000	5000	6000
Total Costs Incurred
Fixed = Remain fixed for all units	$             48,000.00	$    48,000.00	$     48,000.00	$         48,000.00
Variable = Units x Variable cost per unit	$             36,000.00	$    48,000.00	$     60,000.00	$         72,000.00
Total Costs	$             84,000.00	$    96,000.00	$   108,000.00	$       120,000.00
Cost Per Unit:
Fixed = Total fixed cost/ units	$                    16.00	$           12.00	$              9.60	$                  8.00
Variable = cost per unit remains fixed for all units	$                    12.00	$           12.00	$            12.00	$                12.00
Total Cost per unit	$                    28.00	$           24.00	$            21.60	$                20.00
For 5020 units Produced
Total Cost = $48000 + (5020 x $12)	$           108,240.00