Exercise 6-29

Exercise 6-29 Account-Classification Method; Food Processing ( LO 6-1, 6-2, -5) Chillicothe Meat Company produces one of the best sausage products in southern Ohio. The company's controller used the accountclassification method to compile the following information. a. Depreciation schedules revealed that monthly depreciation on buildings and equipment is $19,000. b. Inspection of several invoices from meat packers indicated that meat costs the company $1.10 per pound of sausage produced. c. Wage records showed that compensation for production employees costs $.70 per pound of sausage produced. d. Payroll records showed that supervisory salaries total $10,000 per month. e. Utility bills revealed that the company incurs utility costs of $4,000 per month plus $.20 per pound of sausage produced. Required: 1. Classify each cost item as variable, fixed, or semivariable. 2. Write a cost formula to express the cost behavior of the firm's production costs. (Use the formula Y=a+bX, where Y denotes production cost and X denotes quantity of sausage produced.)