Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round.
The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower
limits of activity for the year ended December 31, 2020.
Lower Limit Upper Limit
Production (# of boxes) 4,000 6,000
Production Costs:
Direct Materials …………………… $60,000 $90,000
Direct Labour ………………………. 80,000 120,000
Overhead:
Indirect Materials…………... 25,000 37,500
Indirect Labour ……………. 40,000 50,000
Depreciation ………………. 20,000 20,000
Selling & Administrative Expenses:
Sales Salaries ……………………… 50,000 65,000
Office Salaries ……………………… 30,000 30,000
Advertising ………………………….. 45,000 45,000
Other …………………………………………. __15,000 __20,000
Total $365,000 $477,500
Required:
a) Classify each cost element as either fixed, variable, or mixed
b) Calculate:
i) the variable production cost per unit and the total fixed production overhead.
ii) The total variable cost per unit and the total fixed costs
Hint: Use the high-low method to separate mixed costs into their fixed and variable components.