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The cost structure of Sackville Manufacturing Company (SMC) at two levels of production is as follows: Units 80,000 100,000 Costs: Direct materials $160,000 $200,000 Direct

The cost structure of Sackville Manufacturing Company (SMC) at two levels of production is as follows:

Units80,000100,000
Costs:
Direct materials$160,000$200,000
Direct labour120,000150,000
Factory overhead215,000249,000
Total costs$495 ,000$599 ,000
Average cost per unit$6.19$5.99



Required:

a. Classify and explain each production cost as either strictly variable or strictly fixed or mixed
b. Determine the total production cost equation for SMC, using the units of production as the cost driver. (Be sure to identify clearly all the separate components of the equation.)
c. Explain what causes the drop in average cost per unit from $7.10 to $6.60 when production is increased from 60,000 to 80,000 units. Show all supporting calculations.

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