Chapter 6, Problem 29E

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.

1. a. Depreciation schedules revealed that monthly depreciation on buildings and equipment is $19,000.
2. b. Inspection of several invoices from meat packers indicated that meat costs the company $1.10 per pound of sausage produced.
3. c. Wage records showed that compensation for production employees costs $.70 per pound of sausage produced.
4. d. Payroll records showed that supervisory salaries total $10,000 per month.
5. e. Utility bills revealed that the company incurs utility costs of $4,000 per month plus $.20 per pound of sausage produced.

Required:

1. 1. Classify each cost item as variable, fixed, or semivariable.
2. 2. Write a cost formula to express the cost behavior of the firm’s production costs. (Use the formula Y= a + bX, where Y denotes production cost and X denotes quantity of sausage produced.)