Determine the variable cost per unit and the fixed cost using the high-low method. b) What is the equation of the total mixed cost function? e) In view of the department’s cost behaviour pattern, which of the two methods appear more appropriate? Explain your answer.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
The table below shows monthly data collected on production costs and on the number of units produced over a twelve month period.
Month Total Production Costs Level of Activity (Units Produced)
July $230,000 3,500
August 250,000 3,750
September 260,000 3,800
October 220,000 3,400
November 340,000 5,800
December 330,000 5,500
January 200,000 2,900
February 210,000 3,300
March 240,000 3,600
April 380,000 5,900
May 350,000 5,600
June 290,000 5,000
a) Determine the variable cost per unit and the fixed cost using the high-low method.
b) What is the equation of the total mixed cost function?
e) In view of the department’s cost behaviour pattern, which of the two methods appear more appropriate? Explain your answer.
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