Question

ABC Firm reports the following for the first three months of 2020: January February March Units Produced Units Sold 6,000 3,500 8,000 8,800 4,500 4,000 COGS Direct Materials Used Depreciation Shipping Cost Rent Utilities in Factory $37.700 19,500 7,500 4,900 3,125 16,500 $69,500 26,000 7,500 12,320 3,125 19,100 $40,700 14,625 7,500 5,600 3,125 14,550 1. For each cost, determine whether it is fixed, variable or mixed. You will have to think carefully about the appropriate level of activity for each cost: units sold or units produced. 2. Prepare a cost function for each cost.

Answer 1

A B 1 1 2 COGS Mixed 3 Direct materials Variable 4 Depreciation Fixed 5 Shipping cost Variable 6 Rent Fixed 7 Utilities Mixed 8 92 10 Let the number of units produced be x and number of units sold be y. 11 12 COGS: 13 Variable cost per unit sold $6.00 14 Fixed cost $16.700 15 Cost function C = $6.00y + $16,700 16 17 Direct materials: 18 Variable cost per unit produced $3.25 19 Cost function DM = $3.25x 20 21 Depreciation: 22 Fixed cost $7,500 23 Cost function D = $7,500 24 25 Shipping cost: 26 Variable cost per unit sold $1.40 27 Cost function SC = $1.40 28 29 Rent: 30 Fixed cost $3,125 31 Cost function R= $3,125 32 33 Utilities: 34 Variable cost per unit produced $1.30 35 Fixed cost $8.700 36 Cost function U= $1.30.x + $8,700 6

Calculations are shown below: A B 1 1 2 COGS Mixed 3 Direct materials Variable 4 Depreciation Fixed 5 Shipping cost Variable 6 Rent Fixed 7 Utilities Mixed 8 9 2 10 Let the number of units produced be x and number of units sold be y. 11 12 COGS: 13 Variable cost per unit sold =(69500-40700)/(8800-4000) 14 Fixed cost =69500-(8800*B13) 15 Cost function C = $6.00y + $16,700 16 17 Direct materials: 18 Variable cost per unit produced =19500/6000 19 Cost function DM = $3.25x 20 21 Depreciation: 22 Fixed cost 7500 23 Cost function D = $7,500 24 25 Shipping cost: 26 Variable cost per unit sold =4900/3500 27 Cost function SC = $1.40y 28 29 Rent: 30 Fixed cost 3125 31 Cost function R= $3,125 32 33 Utilities: 34 Variable cost per unit produced 1=(19100-14550)/(8000-4500) 35 Fixed cost =19100-(8000*B34) 36 Cost function U = $1.30x + $8,700