Problem 1

The J. Page Furniture Company has the following information available regarding costs at various levels of monthly production:

Production volume (units)	16,000 Units	22,000 Units
Direct materials	$70,000	$96,250
Direct labor	66,000	90,750
Indirect materials	21,000	28,875
Supervisors salaries	12,000	12,000
Depreciation on plant and equipment	10,000	10,000
Maintenance	32,000	44,000
Utilities	15,000	21,000
Insurance on plant and equipment	1,600	1,600
Property taxes on plant and equipment	2,000	2,000
Total	$229,600	$306,475

Required

Identify each item above as either a: (1) variable cost item, (b) a fixed cost item, or (c) a mixed cost item

Develop an equation for total monthly production costs using the high-low method of cost estimation.

Using your equation from b. above, predict total costs for a monthly production volume of 25,000 units.

If total productive capacity is 23,000 units, explain why we could not use this equation to make the prediction indicated in c. above, using our cost equation developed for this problem.

What is the weakness associated with estimating future cost using an average total cost per unit amount?For example, assuming our productive capacity is 30,000 units, average total cost for 16,000 units = ($229,600/16,000 units) = $14.35, why not use the $14.35 to estimate total cost at 25,000 units of production?