Chapter 4, Problem 2P

Miller Minerals Co. manufactures a product that requires the use of a considerable amount of natural gas to heat it to a desired temperature. The process requires a constant level of heat, so the furnaces are maintained at a set temperature for 24 hours a day. Although units are not continuously processed, management desires that the variable cost be charged directly to the product and the fixed cost to the factory overhead. The following data have been collected for the year:

Required:

1. 1. Separate the variable and fixed elements, using the high-low method.
2. 2. Determine the variable cost to be charged to the product for the year. (Hint: First determine the number of annual units produced.)
3. 3. Determine the fixed cost to be charged to factory overhead for the year.