Concept introduction:
Mixed Costs:
There are three types of costs according to the unit of production; Variable, Fixed and Mixed. Variable costs change proportionally with the number of units produced and variable cost per unit remains constant. Fixed Cost remains same in totality irrespective of the number of units produced.
The mixed cost is the mix of variable and fixed cost, some of its part is fixed and some variable.
High-Low Method:
This method is used to determine the fixed as well as variable part of the mixed cost. The formula for calculation of variable cost per unit is as follows:
The formula to calculate the Fixed Cost is as follows:
To calculate:
The Total Fixed operating costs and Variable operating cost per unit
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Managerial Accounting
- DeMarco Company is developing a cost formula for its packing activity. Discussion with the workers in the Packing Department has revealed that packing costs are associated with the number of customer orders, the size of the orders, and the relative fragility of the items (more fragile items must be specially wrapped in bubble wrap and Styrofoam). Data for the past 20 months have been gathered: Required: 1. Using the method of least squares, run a regression using the number of orders as the independent variable. 2. Run a multiple regression using three independent variables: the number of orders, the weight of orders, and the number of fragile items. Which regression equation is better? Why? 3. Predict the total packing cost for 25,000 orders, weighing 40,000 pounds, with 4,000 fragile items.arrow_forwardThe managerial accountant at Organic Beverage Factory used spreadsheet software to run a regression analysis scenario and compile the following monthly cost data: Organic Beverage Factory Intercept coefficient X Variable 1 Coefficient $4,286,652 $28.21 R-square 0.6521 Which of the following is the correct cost equation showing the correlation of monthly costs, based on the results of the regression analysis compiled by the managerial accountant? O A. y $4,286,652 $28.21 O B. y $0.6521 $28.21x O C. y $28.21x + $4,286,652 O D. y 0.6521x + $4,286,652arrow_forwardMethod of Least Squares, Developing and Using the Cost Formula The method of least squares was used to develop a cost equation to predict the cost of receiving purchased parts at a video game manufacturer. Ninety-six data points from monthly data were used for the regression. The following computer output was received: Intercept 175,600 Slope 455 The cost driver used was number of parts inspected. Required: 1. What is the cost formula? Total cost of receiving = $ + ( $ × ) 2. Using the cost formula from Requirement 1, identify each of the following: independent variable, dependent variable, Variable rate per professional hour, and fixed cost per month. Independent variable Dependent variable Variable rate per professional hour per part inspected Fixed cost per month 3. Using the cost formula, predict the cost of receiving for a month in which 7,200 parts are inspected. Total cost of receiving = $arrow_forward
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- Bumblebee Mobiles manufactures a line of cell phones. The management has identified the following overhead costs and related cost drivers for the coming year. The following were incurred in manufacturing two of their cell phones, Bubble and Burst, during the first quarter. REQUIREMENT Review the worksheet called ABC that follows these requirements. You have been asked to determine the cost of each product using an activity-based cost system. Note that the problem information is already entered into the Data Section of the ABC worksheet.arrow_forwardMethod of Least Squares Refer to the information for Luisa Crimini on the previous page. Required: 1. Using a computer spreadsheet program such as Excel, run a regression on these data. Based on the regression output, write the cost formula for tanning. (Note: Round the fixed cost to the nearest dollar and the variable rate to the nearest cent.) 2. Using the formula computed in Requirement 1, what is the predicted cost of tanning services for September for 2,500 appointments? Use the following information for Exercises 3-44 through 3-46: Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fixed, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows:arrow_forwardManagement would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Number of cases Number of orders. Direct labour-hours per case Selling price per case. Direct materials cost per case Sales Costs: Direct materials Direct labour Supporting manufacturing Order processing Customer service The company's direct labour rate is $30 per hour. Required: Using the company's ABC system, compute the customer margin of Cell City. Customer margin Standard Model 290 5 0.25 $49 $ 26 70 Deluxe Model 105 2 $ 0.40 $ 69 $29 70 (70)arrow_forward
- Colby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Supporting manufacturing Order processing Customer service Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Number of cases Number of orders Direct labour-hours per case Selling price per case Direct materials cost per case The company's direct labour rate is $19 per hour. Sales Costs: Activity Rates $3 per direct labour-hour $15 per order $50 per customer Direct materials Direct labour Supporting manufacturing Order processing Customer service Customer margin Standard Deluxe Model Model 120 35 23 ta ta OSOF 0.20 $ $ 5 35 10 64 $9 $ Required: Using the…arrow_forwardColby Company makes cases for cell phones of all sizes and types for sale through specialty retailers. The company makes a standard model for the most recent iPhone as well as a deluxe model. Management has designed an ABC system with the following activity cost pools and activity rates for these models: Activity Cost Pool Supporting manufacturing Order processing Customer service Management would like an analysis of the profitability of a particular customer, Cell City, which has ordered the following products over the last 12 months: Number of cases Number of orders Direct labour-hours per case Selling price per case Direct materials cost per case. Sales Costs: Activity Rates $2 per direct labour-hour $19 per order $60 per customer Direct materials Direct labour Supporting manufacturing Order processing Customer service The company's direct labour rate is $20 per hour. Required: Using the company's ABC system, compute the customer margin of Cell City. Customer margin Standard Model…arrow_forwardProduct and Customer Profitability Analysis Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: The company’s direct labor rate is $19.50 per hour. Required: Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters.arrow_forward
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