Homework Answers
Answer :
(A) Computation of cost formula for Electricity cost
| January | February | March | |
| Electricity | $ 20000 | $ 15000 | $ 18000 |
| Machine hour | 1200 | 700 | 950 |
Variable cost per Machine hour
= Highest activity cost - Lowest activity cost / Highest activity unit - Lowest activity unit
= $ 20000 - $ 15000 / 1200 - 700
= $ 10 per machine hour
Fixed cost = $ 20000 - 1200 machine hour*$ 10
= $ 8000
Note -1
It is necessary to choose the high low values from the units ( i.e....number of machine hour ) and not the total cost ( i,e..electricity cost)
Cost Formula
Total cost = Fixed cost + variable cost * unit activity
= $ 8000 + ($ 10* Number of machine hour)
(B) Computation of number of machine hour
Total cost = $ 53000
Total Fixed cost = Depreciation + Property tax+ Fixed part of Electricity
= $ 15000 + $ 12000 + $ 8000
= $ 35000
Total Variable cost = Total cost - Total Fixed cost
= $ 53000 - $ 35000
= $ 18000
Variable cost per machine hour = Factory supplies + Electricity
= $ 8+ $ 10
= $ 18
Number of machine hour incurred during april = $ 18000/ $ 18 = 1000
Working note -1
Factory supplies per machine hour = $ 9600/1200 = $ 8
(C) Computation of Total cost for 1500 machine hour
Fixed cost = Depreciation + Property tax+ Fixed part of Electricity
= $ 15000 + $ 12000 + $ 8000
= $ 35000
Variable cost per machine hour = Factory supplies + Electricity
= $ 8+ $ 10
= $ 18
Total cost = Fixed cost + variable cost
= $ 35000 + $ 18*1500 machine hour
= $ 62000
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