Question - Mixed cost, choosing cost drivers and high-low and visual fit methods
Cedar Rapids implements Company produces farm implements. Cedar Rapids is in process of measuring its manufacturing costs and is particularly interest in the cost of the manufacturing maintenance activity, since maintenance is a significant mixed cost. Activity analysis indicates that maintenance activity consist primarily of maintenance labor setting up machines using certain supplies. A setup, machines must still be running, which consumes energy. Thus, the cost associated with maintenance include labor, supplies and energy. Unfortunately, Cedar rapids cost accounting system does not trace costs to maintenance activity separately. Cedar Rapids employs two fulltime maintenance mechanics to perform maintenance. The annual salary of a maintenance mechanic is 25.000 and is condidered a fixed cost. Two plausible cost drivers have been suggested: "units produced" and "number of setups" data had been collected for the past 12 months ans the plot made for the cost driver- Unit of production. The maintenance cost figure collected estimates for labor, supplies, and energy. Cory Fielder, controler at Cedar Rapids noted that each timew a unit is produced. Based on this concept, he has gethered data on the number of setups performed over the past 12 months. The plots of montly maintenance costs versus the two potential cost drivers
1. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver. Explain how you treated the April data.
2. Find monthly fixed maintenance cost and variable maintenance cost per driver unit using the high-low method based on each potential cost driver?