Question
The management accounting division of Solar Limited wants to estimate the companys monthly operating costs for the next 6 months. The following cost and other
The management accounting division of Solar Limited wants to estimate the companys monthly operating costs for the next 6 months. The following cost and other data were gathered for the previous 12 months:
Month | Maintenance Cost | Machine Hours | Health Insurance | No. Of Employees | Shipping Cost | Units Shipped |
Feb | $4500 | 165 | $8600 | 68 | $26492 | 7160 |
March | $4452 | 120 | $8600 | 75 | $30488 | 8240 |
April | $4600 | 230 | $8600 | 92 | $29471 | 7965 |
May | $4850 | 318 | $8600 | 105 | $23699 | 6405 |
June | $5166 | 460 | $8600 | 89 | $21886 | 5917 |
July | $4760 | 280 | $8600 | 87 | $34207 | 9245 |
Aug | $4910 | 340 | $8600 | 93 | $32301 | 8730 |
Sept | $4960 | 360 | $8600 | 88 | $31136 | 8415 |
Oct | $ 5,070 | 420 | $ 8,600 | 95 | $ 25,808 | 6,975 |
Nov | $ 5,250 | 495 | $ 8,600 | 102 | $ 26,585 | 7,185 |
Dec | $ 5,271 | 510 | $ 8,600 | 97 | $ 20,683 | 5,590 |
Jan | $ 4,760 | 275 | $ 8,600 | 94 | $ 35,557 | 9,610 |
The maintenance cost is a mixed cost because the cost neither remains constant in total nor remains constant per unit. The health insurance cost is fixed per month because, although the number of employees change from month to month, the total cost remained constant. The shipping cost varies with the number of units shipped. Solar Ltd received a notification from its health insurance company in January. The notice from the insurance company advised that the insurance that the monthly health insurance premium will be increased by 2% commencing April 2021. Solar Ltd also received a notification from its shipping company in December. The notice from the shipping company advised that the shipping charges per shipment would increase by 3.13% from May 2021.
The budgeted data for Solar Limited for the next 6 months is presented below.
Month | Machine hours | No. of employees | Units shipped |
February | 192 | 95 | 9825 |
March | 175 | 96 | 9,925 |
April | 225 | 97 | 9,975 |
May | 325 | 98 | 10,025 |
June | 450 | 99 | 10,050 |
July | 290 | 100 | 10,125 |
Required:
(1) Using the highlow method, determine the fixed component of maintenance cost and the variable component of maintenance cost per machine hour.
(2) Combine the answers from the calculation in requirement (1) with the information provided in the case study to estimate monthly maintenance, health insurance and shipping costs for Solar Limited for the period February to July 2021.
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