Question
Mears Production Company makes several products and sells them for an average price of $75. In 2014, Mears' accountant used two different approaches to estimate
Mears Production Company makes several products and sells them for an average price of $75. In 2014, Mears' accountant used two different approaches to estimate the firm's total monthly cost function, account analysis and high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in February, when production was 2,000 units. The following are the results of that analysis:
Cost Item | Total Cost | Variable Cost | Fixed Cost |
Direct materials | $8,600 | $8,600 | $0 |
Direct labor | $10,000 | $10,000 | $0 |
Factory overhead | $8,120 | $5,200 | $2,920 |
Selling expenses | $6,900 | $3,600 | $3,300 |
Administrative expenses | $4,900 | $0 | $4,900 |
1. Using the high-low method, what was the accountant's estimate of total fixed costs for October? 2. Using the high-low method, what was the accountant's estimate of total variable costs for October?
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