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Question - The table below shows monthly data collected on production costs and on the number of units produced over a twelve month period.
Month Total Production Costs Level of Activity (Units Produced)
July $230,000 3,500
August 250,000 3,750
September 260,000 3,800
October 220,000 3,400
November 340,000 5,800
December 330,000 5,500
January 200,000 2,900
February 210,000 3,300
March 240,000 3,600
April 380,000 5,900
May 350,000 5,600
June 290,000 5,000
Required -
a) Determine the variable cost per unit and the fixed cost using the high-low method.
b) What is the equation of the total mixed cost function?
c) Prepare the scatter diagram, clearly showing any outliers.
d) Using the line of best-fit, determine the company's fixed cost per month and the variable cost per unit.
e) In view of the department's cost behaviour pattern, which of the two methods appear more appropriate? Explain your answer.
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