Question

Mastery Problem: Cost-Volume-Profit Analysis Cost Behavior Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow. Total Total Total Machine Units Lumber Utilities Depreciation Produced Cost Cost Cost 7,000 shelves $84,000 $9,550 $120,000 14,000 shelves 168,000 17,600 120,000 28.000 shelves 336,000 33,700 120,000 35,000 shelves 420,000 41,750 120,000 1. Determine whether the costs in the table are variable, fred, mixed, or none of these Lumber Variable Cost Utilities Mixed Cost Fixed Cost ✓ Depreciation 2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter"O". Recall that, for Number of Units Produced, Total Costs (Variable Cost Per Unit XN) + Fixed Cost. Complete the following table with your answers, Round variable portion of cost (per unit) answers to two decimal places. Fixed Portion Variable Portion Cost of Cost of Cost (per unit) Lumber 07 12.00 ✓ Uulities 1,000 x 1.15 ha

Answer 1

Cost behaviour:

1. Lumber: Variable cost as the cost per unit is constant ($12) for each production level.

Utilities: Mixed cost as the cost per unit is different at each production level.

Depreciation: Fixed cost as the total depreciation cost is constant at each production level.

2.

Lumber:

Cost of Lumber at each production level = 84,000/7,000= 168,000/14,000 = 336,000/28,000 = 420,000/35,000= $12

Fixed portion of cost = 0

Variable portion of cost = $12

Utilities:

Utilities is a mixed cost, i.e includes both fixed and variable portion in cost.

Let the fixed portion of cost be x and variable portion of cost per unit be y.

Therefore, we can say that

9,550 = x + 7,000y

and, 17,600 = x + 14,000y

Subtracting both the equations, we get

8,050 = 7,000y

So, y = 8,050/7,000 = $1.15/ unit

Substituting the value of y in the first equation, we get

9,550 = x + 7,000*1.15

9,550 = x + 8,050

x = 9,550 - 8,050 = $1,500

So, variable portion of cost per unit = $1.15

Fixed portion of cost = $1,500

Depreciation:

The total depreciation cost per unit is fixed at all production level.

So, fixed portion of cost = $120,000

Variable portion of cost per unit = 0