Problem 1 The J. Page Furniture Company has the following information available regarding costs at various levels of monthly production: Production volume (units) 16,000 22,000 $96,250 $70,000 66,000 21,000 12,000 Direct materials Direct labor 90,750 Indirect materials 26,500 Supervisors' salaries 12,000 Depreciation on plant and equipment 10,000 10,000 32,000 17,000 3,200 4,000 $235,200 Maintenance 44,000 23,750 Utilities Insurance on plant and equipment 3,200 Property taxes on plant and equipment 4,500 Total $310,950 The company's total monthly production capacity is 30,000 units. Required a. Using the high-low method, develop a cost estimation equation for total monthly production costs using number of units produced as the "cost driver". b. Using your equation from b. above, predict total costs for a monthly production volume of 25,000 units. c. Average total cost for 16,000 units = ($235,200/16,000 units) = $14.69, conceptually, why shouldn't the company use the average cost of $14.69 to estimate total cost at 25,000 units of production? %3D d. If total productive capacity is 23,000 units, explain why we could not use this equation to make the prediction indicated in c. above, using our cost equation developed for this problem. e. What are the basic assumptions associated with cost, volume, profit analysis?

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Problem 1
The J. Page Furniture Company has the following information available regarding costs at various levels
of monthly production:
Production volume (units)
16,000
22,000
$70,000
66,000
21,000
$96,250
90,750
26,500
Direct materials
Direct labor
Indirect materials
Supervisors' salaries
12,000
12,000
Depreciation on plant and equipment
10,000
10,000
32,000
17,000
3,200
Maintenance
44,000
23,750
Utilities
Insurance on plant and equipment
3,200
Property taxes on plant and equipment
4,000
4,500
Total
$235,200
$310,950
The company's total monthly production capacity is 30,000 units.
Required
a. Using the high-low method, develop a cost estimation equation for total monthly production costs
using number of units produced as the "cost driver".
b. Using your equation from b. above, predict total costs for a monthly production volume of 25,000
units.
c. Average total cost for 16,000 units = ($235,200/16,000 units) = $14.69, conceptually, why shouldn't
the company use the average cost of $14.69 to estimate total cost at 25,000 units of production?
d. If total productive capacity is 23,000 units, explain why we could not use this equation to make the
prediction indicated in c. above, using our cost equation developed for this problem.
What are the basic assumptions associated with cost, volume, profit analysis?
е.
Transcribed Image Text:Problem 1 The J. Page Furniture Company has the following information available regarding costs at various levels of monthly production: Production volume (units) 16,000 22,000 $70,000 66,000 21,000 $96,250 90,750 26,500 Direct materials Direct labor Indirect materials Supervisors' salaries 12,000 12,000 Depreciation on plant and equipment 10,000 10,000 32,000 17,000 3,200 Maintenance 44,000 23,750 Utilities Insurance on plant and equipment 3,200 Property taxes on plant and equipment 4,000 4,500 Total $235,200 $310,950 The company's total monthly production capacity is 30,000 units. Required a. Using the high-low method, develop a cost estimation equation for total monthly production costs using number of units produced as the "cost driver". b. Using your equation from b. above, predict total costs for a monthly production volume of 25,000 units. c. Average total cost for 16,000 units = ($235,200/16,000 units) = $14.69, conceptually, why shouldn't the company use the average cost of $14.69 to estimate total cost at 25,000 units of production? d. If total productive capacity is 23,000 units, explain why we could not use this equation to make the prediction indicated in c. above, using our cost equation developed for this problem. What are the basic assumptions associated with cost, volume, profit analysis? е.
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