Instructions:

1)

Determine whether each of the manufacturing costs listed above are fixed, variable, or mixed

and enter F, V, or M into the appropriate boxes above

Hint: if the total cost of an item is the same for all levels of output, the cost is fixed;

if the unit cost of an item is the same for all levels of output, the cost is variable;

otherwise, the cost is mixed.

2)

Once you determine the behavior of each manufacturing cost item, enter the cost

into the appropriate column of the "Cost of Great Heaths" schedule.

Variable costs are entered as per-unit amounts while fixed costs are entered as total amounts

3)

Mixed costs will have to be broken down into their fixed and variable components using the Mixed costs will have to be broken down into their fixed and variable components using the

High-Low Method. Once you have computed each component, enter them into the schedule

Show all work for the High-Low Method in the High-Low Worksheet tab

4)

Once columns L and M have been completed, compute total manufacturing cost and per-unit

cost for each item assuming 500 units are produced.

Hint: Lee High's stated total cost per unit is $6.60. The "Added amount for rounding, etc." is a

plug number and should be $0.12.

Week

Units of Output

Direct Materials

Direct Labor

Indirect Labor

Indirect Materials

Electricity

Factory Insurance

Other Overhead

1

400

$300

$500

$180

$300

$115

$125

$310

2

500

375

625

200

300

125

125

360

3

600

450

750

220

300

135

125

410

Enter F, V, or M:

Cost of Great Heaths
	Unit	Total
	Variable	Fixed		Cost of 500 units
Manufacturing Cost	Cost	Cost		Total	Per Unit
Direct materials
Direct labor
Indirect labor
Indirect material
Electricity
Factory Insurance
Other overhead
Total
Administrative and Selling
At $7.00 price
Total shown by Lee High
Added amount for rounding, etc.
Lee High's stated total cost per unit

BLACKHEATH MANUFACTURING COMPANY Blackheath Manufacturing produced a single product called the Great Heath. During the past three weeks, Lee High, the new cost accountant, had observed that production efficiency and input prices were constant but that output varied considerably These three weeks were thought of as typical by the sales representative, who said that they could be taken as average. Production costs were accumulated and accounted for under seven different groups listed below: Units of Direct Direct Indirect Indirect Output Materials Labor Labor Materials Electricity Insurance Overhead Factory Other $300 375 450 $500$180 625 750 220 $300 300. 300 S115 Week 2 Week 3 600 S125 125. 125 500 $310 360 410 200 135 Lee High thought that this would be an ideal time to do some cost analysis on the Great Heath. Based on the data for three weeks' production costs, he felt it would be possible to identify fixed costs, variable costs, and semivariable costs. Furth wanted to develop some equations that might be useful fo ermore, Lee r managerial decision making. From such equations, it seemed that break-even volume could be generated. Since production was usually based on orders actually received and since products were shipped immediately upon completion, inventories of work-in-process and finished goods were practically nonexistent. When talking to the sales representative, Lee discovered that on typical orders the selling price of Great Heath was $7.00. During lunch one day, Lee was told by the president that office expenses, including certain selling items, were fixed at $781 per week. Lee High decided to begin his analysis with income statements from the past three weeks: Week l $2,800 830 S 970 1.061 Week 2 S3,500 2.110 $1,390 Week 3 Sales Cost of goods sold Gross Margin Less: other expenses Net Income $4,200 S1,810 From these statements, Lee realized that selling more added to profit. He also realized that cost of goods sold per unit seemed to fall as output rose: CASE: BLACKHEATH MANUFACTURING COMPANY