Calculate Costs of Production Units

							ACCOUNTING: What the Numbers Mean, 8e
Chapter 12 Problem 12.12                                           Name: Enter Name


General Spreadsheet Instructions:

   Step 1:      Review General
                 Spreadsheet
                 Instructions                                               Complete the problem
                                                                               requirements by
                                                                             entering appropriate
                           Step 2:         Review
                                                                              dollar amounts or
                                        Problem 12.12                       formulas in "shaded"
                                         Worksheet                             worksheet cells

                                                 Step 3:   Complete
                                                            Analysis
                                                           Worksheet

                                                                  Step 4:            Respond to
                                                                              "What the Numbers Mean"
                                                                                     Worksheet
ACCOUNTING: What the Numbers Mean, 8e
Chapter 12 Problem 12.12                                                                          Name: Enter Name


Problem Description:
            The following data has been extracted from the records of Riddle Co.:

                                                                                                 July                December
                             Production level, in units                                            5,000                 10,000

                             Variable costs                                                 $     12,000             $   ?
                             Fixed costs                                                           ?                     18,000
                             Mixed costs                                                          10,000                  ?
                               Total costs                                                  $     40,000             $   59,000



Instructions:

            Please proceed to the "Analysis" worksheet and complete the basic problem requirements. Complete the problem
            requirements by entering appropriate amounts or formulas in shaded worksheet cells:

                a. Calculate the missing costs.
                b. Calculate the cost formula for mixed costs using the high-low method.
                c. Calculate the total cost that would be incurred for the production of 8,000 units.

            After completing the "Analysis" worksheet, please proceed to the "What the Numbers Mean" worksheet and respond
            to the additional requirements presented.
ACCOUNTING: What the Numbers Mean, 8e
Chapter 12 Problem 12.12                                                                   Name: Enter Name


Complete the Modeling:
   a. Solve for the Missing Costs:                                                                       July                 December
                                                                               Activity in Units:           5,000                 10,000

            Monthly Costs:
             Total cost                                                                             $       40,000        $        59,000

                                                     Variable                  Fixed
            Breakdown of Total Cost:               Rate per Unit              Amount
              Variable cost     (Step 1)                                                            $       12,000

              Fixed cost                                 (Step 2)                                                                  18,000

              Mixed cost        (The breakdown of total mixed cost into its fixed and variable              10,000
                                         components will be determined in Part B)                                              (Step 3)




   b. High-Low Method to Calculate the Cost Formula for Mixed Costs:

                           Cost Formula       =    Fixed Cost       +       (Variable Rate    *     Activity)


                                                    December                   July
                                                   High Amount              Low Amount                  Change

                             Total Mixed Cost

                               Activity in Units


                                                     Variable           $              -
                                   (Step 1)                                                                          per unit
                                                      Rate                             -



                                   (Step 2)        Fixed Cost           Total Mixed Cost             Variable Cost

                                                                                                    Variable Rate     *            Activity

                                                                                                                      *




                                                                            Fixed Cost              Variable Rate
                              Cost Formula for Mixed Cost =                                   +                      per unit
ACCOUNTING: What the Numbers Mean, 8e
Chapter 12 Problem 12.12                                                               Name: Enter Name


What does it mean? Question 1:
            Why is it important for Riddle Co. to understand the cost formula for their mixed costs?




What does it mean? Question 2:
            What is the cost formula for all costs in the Riddle Co.? In other words, now that you have
            determined cost formula for the "mixed" cost component, what are the total fixed costs and the total
            variable costs per unit for the company overall?

                                                              Fixed                Variable
                                                              Cost                  Rate
                                       Cost Formula =                       +                   per unit

            If Riddle expected to operate at 8,000 units of activity, how would you use the cost formula?




What does it mean? Question 3:
            Describe any weakness you see in using the high-low method to create cost formulas.