Problem
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 0-2,000 units, and monthly production costs for the production of 1,700 units follow. Morning Dove's utilities and maintenance costs are mixed with the fixed components shown in parentheses.
|
Production Costs
|
Total Cost
|
|
Direct materials
|
2,700
|
|
Direct labor
|
6,900
|
|
Utilities ($150 fixed)
|
570
|
|
Supervisor's salary
|
2,600
|
|
Maintenance ($250 fixed)
|
460
|
|
Depreciation
|
750
|
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).
2. Determine the total fixed cost per month and the variable cost per unit for Morning Dove.
3. State Morning Dove's linear cost equation for a production level of 0-2,000 units. Enter answer as an equation in the form of y = a + bx.
4. Calculate Morning Dove's expected total cost if production increased to 1,900 units per month. Enter answer as an equation in the form of y = a + bx.