Question - Fahrenheit Co. manufactures a product that requires the use of a considerable amount of natural gas to heat it to a desired temperature. The process requires a constant level of heat, so the furnaces are maintained at a set temperature for 24 hours a day. Although units are not continuously processed, management desires that the variable cost be charged directly to the product and the fixed cost to the factory overhead. The following data has been collected for the year:
Month Units Cost
Jan 2,400 4,400
Feb 2,300 4,300
Mar 2,200 4,200
Apr 2,000 4,000
May 1,800 3,800
Jun 1,900 3,900
Jul 2,200 4,400
Aug 2,100 4,100
Sep 2,000 3,800
Oct 1,400 3,400
Nov 1,900 3,700
Dec 1,800 4,050
Total 24,000 $48,050
1. Separate the variable and fixed elements, using the high-low method.
2. Determine the cost to be charged to the product for the year.
3. Determine the cost to be charged to factory overhead for the year.