Measurement of Cost Behavior

Amal (the cost accountant) in Dream Company asked the financial accounting department to provide cost information for the production department for the month of May (June information is not yet available). Because the financial accounting department tracks information by department, it is able to produce this information. The production department information for May is as follows:

Unit produced and sold		6000
Material used in production	$240,000
Labor (assembly and supervisors)	$180,000
Facilities costs (rent, utilities, insurance.etc)	$60,000
Total production cost	$480,000

Amal reviewed this cost information with the production manager, Ali Khalid, who has worked as production manager at Dream company for several years. After careful review, Ali and Amal came up with the following breakdown of variable and fixed costs for May:

	Total Cost	Variable Costs	Fixed Costs
Material used in production	$240,000	$240,000	0
labor(assembly and supervisors)	180,000	120,000	$ 40,000
Facilities costs (rent, utilities, insurance.etc)	60,000	30,000	30,000
Total	$480,000	$390,000	$70,000

Required:

Based on Mays information, describe the mix- cost function for Dream Company using the Accounting Analysis approach. (6 marks)

Assume that Dream Company intends to produce 6500 and 7,000 units on June and July respectively. What will be the Total production costs for June and July? (4 marks)