Cover-to-Cover Company is a manufacturer of shelving for books. The company has
ID: 2400515 • Letter: C
Question
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. Units Total Total Total Machine Produced Lumber Cost Utilities Cost Depreciation Cost 12,000 shelves $144,000 $14,800 $125,000 24,000 shelves $288,000 $28,600 $125,000 48,000 shelves $576,000 $56,200 $125,000 60,000 shelves $720,000 $70,000 $125,000 1. Determine whether the costs in the table are variable, fixed, mixed, or none of these. Variable Cost Fixed Cost Mixed Cost None of these Lumber Utilities 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 "0". Recall that, for N= Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Cost Fixed Portion of Cost Variable Portion of Cost (per Unit) Lumber $ $ Utilities $ $ Depreciation $ $
Explanation / Answer
1 Lumber cost: Units Produced Lumber cost Cost per unit 12000 144000 12 24000 288000 12 48000 576000 12 60000 720000 12 It is a variable cost since cost per unit is $12 per unit produced Utilities cost: Units Produced Utilities cost Cost per unit 12000 14800 1.233333 24000 28600 1.191667 48000 56200 1.170833 60000 70000 1.166667 It is a mixed cost since cost per unit changes in each level of unit produced. Depreciation cost: Units Produced Utilities cost 12000 125000 24000 125000 48000 125000 60000 125000 It is a fixed cost since total cost is same at each level of unit produced Variable Cost Fixed Cost Mixed Cost None of these Lumber x Utilities x Depreciation x 2 For utilities: Variable cost=Change in total cost/Change in units produced Consider highest and lowest level of activity. i.e,12000 units and 60000 units Variable cost=(70000-14800)/(60000-12000)=$1.15 per unit Consider 12000 units Fixed cost=Total cost-(Variable cost per unit*Unit produced)=14800-(1.15*12000)=$ 1000 Cost Fixed Portion of Cost Variable Portion of Cost (per Unit) Lumber 0 12 Utilities 1.15 1000 Depreciation 0 125000