Calculate Costs of Production Units

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Calculate Costs of Production Units document sample

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

Step 1:      Review General
Instructions                                               Complete the problem
requirements by
entering appropriate
Step 2:         Review
dollar amounts or
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
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.

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