Question

Morning Dove Company manufactures one model of birdbath, which is very popular. Morning Dove sells all units it produces each month. The relevant range is 0–1,600 units, and monthly production costs for the production of 1,100 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.   

Production Costs	Total Cost
Direct materials	$	1,500
Direct labor		7,900
Utilities ($130 fixed)		630
Supervisor’s salary		2,600
Maintenance ($310 fixed)		460
Depreciation		800

Required:
1. Identify each cost as variable, fixed, or mixed, and express each cost as a rate per month or per unit (or combination thereof). (Round your per unit value to 2 decimal places.)



2. Determine the total fixed cost per month and the variable cost per unit for Morning Dove. (Round your variable cost per unit to 2 decimal places.)



3. State Morning Dove’s linear cost equation for a production level of 0–1,600 units. Enter answer as an equation in the form of y = a + bx. (Round your variable cost per unit to 2 decimal places.)



4. Calculate Morning Dove’s expected total cost if production increased to 1,300 units per month. Enter answer as an equation in the form of y = a + bx. (Round Variable cost per unit to 2 decimal places.)

Answer 1

Production Costs	Total Cost		Identification
Direct materials	$	1,500	Variable cost
Direct labor		7,900	Variable cost
Utilities ($130 fixed)		630	mixed cost
Supervisor’s salary		2,600	Fixed cost
Maintenance ($310 fixed)		460	mixed cost
Depreciation		800	Fixed cost

2) Total Fixed cost = 130+310+2600+800 = 3840

Variable cost = (1500+7900+500+150)/1100 = $9.14 per unit

3) Y = a+bx

Y = 3840+9.14X

4) Total Cost = 3840+(1300*9.14) = 15722