Problem
Mears Production Company makes several products and sells them for an average price of $70. In 2014, Mears' accountant used two different approaches to estimate the firm's total monthly cost function, account analysis and high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in June, when production was 1,650 units. The following are the results of that analysis:
|
Cost Item
|
Total Cost
|
Variable Cost
|
Fixed Cost
|
|
Direct materials
|
$6,930
|
$6,930
|
$0
|
|
Direct labor
|
$8,085
|
$8,085
|
$0
|
|
Factory overhead
|
$7,450
|
$3,960
|
$3,490
|
|
Selling expenses
|
$6,695
|
$3,135
|
$3,560
|
|
Administrative expenses
|
$3,400
|
$0
|
$3,400
|
For the high-low method, she developed the cost function using the same data from June and data from May, when production was 2,350 units and total costs were $43,094. After developing the two cost functions, the accountant used them to make predictions for the month of October, when production was expected to be 2,275 units.
REQUIRED [ROUND UNIT COSTS TO THE NEAREST CENT AND TOTAL COSTS TO THE NEAREST DOLLAR.]
1. Using account analysis, what was the accountant's estimate of total fixed costs for October?
2. Using account analysis, what was the accountant's estimate of variable costs per unit for October?