Reference no: EM132380289

Question

Using account analysis, what was the accountant's estimate of variable costs per unit for October?

Mears Production Company makes several products and sells them for an average price of $80. Mears' accountant is considering two different approaches to estimating 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 1,800 units. The following are the results of that analysis:

Cost Item	Total Cost	Fixed Cost	Variable Cost
Direct materials	$8,100	$0	$8,100
Direct labor	$8,640	$0	$8,640
Factory overhead	$9,320	53,200	$6,120
Selling expenses	$5,880	53,540	$2,340
Administrative expenses	$4,050	$4,050	$0
Total expenses	$35,990	$10,790	$25,200

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 $44,564.

After developing the two cost functions, the accountant used them to make predictions for the month of October, when production was expected to be 2,175 units.