E52 Determining Cost Behavior and Calculating Expected Cost

E5-2 Determining Cost Behavior and Calculating Expected Cost [LO 5-1]

Morning Dove Company manufactures one model of birdbath, which is very popular. Morning Dove sells all units it produces each month. The relevant range is 0–1,800 units, and monthly production costs for the production of 1,400 units follow. Morning Dove’s utilities and maintenance costs are mixed with the fixed components shown in parentheses.   

Required:
1. Identify each cost as variable, fixed, or mixed, and express each cost as a rate per month or per unit (or combination thereof). (Round your per unit value to 2 decimal places.)



2. Determine the total fixed cost per month and the variable cost per unit for Morning Dove. (Round your variable cost per unit to 2 decimal places.)



3. State Morning Dove’s linear cost equation for a production level of 0–1,800 units. Enter answer as an equation in the form of y = a + bx. (Round your variable cost per unit to 2 decimal places.)



4. Calculate Morning Dove’s expected total cost if production increased to 1,600 units per month. Enter answer as an equation in the form of y = a + bx. (Round Variable cost per unit to 2 decimal places.)

Solution

1.

2. Total fixed cost per month = $100 + $3000 + $340 + $850 = $4290

Variable cost per unit = $1.50 + $5.21 + $0.33 + $0.09 = $7.13

3. y = $4290 + $7.13x

4. Total cost = $4290 + ($7.13 x 1600) = $4290 + $11408 = $15698