Mears Production Company makes several products and sells them for an average price of $75....
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Mears Production Company makes several products and sells them for an average price of $75. Mears' accountant is considering two different approaches to estimating the firm's total monthly cost function, account analysis and high-low. In both cases, she used units of production as the independent variable. For the account analysis approach, she developed the cost function by analyzing each cost item in February, when production was 1,900 units. The following are the results of that analysis Cost Item Direct materials Direct labor Factory overhead Selling expenses Administrative expenses Total expenses Total Cost $7,410 $8,930 $9,320 $6,630 $4,550 $36,840 Fixed Cost $0 $0 $3,240 $3,020 $4,550 $10,810 Variable Cost $7,410 $8,930 $6,080 $3,610 $26,030 For the high-low method, she developed the cost function using the same data from February and data from May, when production was 2,400 units and total costs were $44,893 After developing the two cost functions, the accountant used them to make predictions for the month of December, when production was expected to be 2,350 units
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