Cost Classification Discussion 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 Prepare the scatter diagram and insert the trendline or line of best-fit. Use a scale of 2 cm to represent 1,000 units on the x-axis & 2 cm to represent $50,000 on the yaxis. Using the line of best-fit, determine the company’s fixed cost per month and the variable cost per unit. (Use 0 & 5,000 units.) Which of the two methods appear more appropriate? Explain your answer.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Cost Classification Discussion 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 |
- Prepare the scatter diagram and insert the trendline or line of best-fit. Use a scale of 2 cm to represent 1,000 units on the x-axis & 2 cm to represent $50,000 on the yaxis.
- Using the line of best-fit, determine the company’s fixed cost per month and the variable cost per unit. (Use 0 & 5,000 units.)
- Which of the two methods appear more appropriate? Explain your answer.
Step by step
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Could you show me the equation and breakdown of this, that I could understand?
| Particulars | Amount |
| Units Produced | 5,000 |
| Total production cost | 290,000 |
| Fixed cost | 30,000 |
| Total variable cost | 260,000 |
| Variable cost per unit | $52 |
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