Chillicothe Meat Company produces one of the best sausage products in southern Ohio. The company's controller used the account-classification method to compile the following information.Depreciation schedules revealed that monthly depreciation on buildings and equipment is $19,000.Inspection of several invoices from meat packers indicated that meat costs the company $1.10 per pound of sausage produced.Wage records showed that compensation for production employees costs $0.70 per pound of sausage produced.Payroll records showed that supervisory salaries total $10,000 per month.Utility bills revealed that the company incurs utility costs of $4,000 per month plus $0.20 per pound of sausage produced.1) Write a cost formula to express the cost behavior of the firm's production costs. ( Use the formula Y=a+bX, where Y denotes the production cost and X denotes the quantity of sausage produced.)

Production cost is the cost incurred by an enterprise in the process of manufacturing a product or providing a service. It includes all types of costs i.e. fixed costs and variable costs. Fixed Costs- These are the costs that remain the same irrespective of the level of production. Variable Costs - These are the costs that increase with the increase in the level of production and decrease with the decrease in the level of production. Cost Formula for best sausage products manufactured by Chillicothe meat Company is Y= a + bX Where Y = production Cost X = Quantity of sausage produced a = Fixed cost b = Variable cost As given in the question, Fixed Cost = Depreciation on buildings & equipment + Payroll Salaries + Fixed utility bills = $19,000 + $10,000 + $4,000 = $33,000 Variable Cost = Inspection cost per pound of sausage + Wages for production employees + variable utility bills = $1.10 + $0.70 + $0.20 = $2 Cost Formula of the firm's production cost Y = a + bY Y = $33,000 + $2Y

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Chillicothe Meat Company produces one of the best sausage products in southern Ohio. The company's controller used the account-classification method to compile the following information.

Depreciation schedules revealed that monthly depreciation on buildings and equipment is $19,000.
Inspection of several invoices from meat packers indicated that meat costs the company $1.10 per pound of sausage produced.
Wage records showed that compensation for production employees costs $0.70 per pound of sausage produced.
Payroll records showed that supervisory salaries total $10,000 per month.
Utility bills revealed that the company incurs utility costs of $4,000 per month plus $0.20 per pound of sausage produced.

1) Write a cost formula to express the cost behavior of the firm's production costs. ( Use the formula Y=a+bX, where Y denotes the production cost and X denotes the quantity of sausage produced.)

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