Question

roarie brothers farm a seed company specializing in seed corn. at their weekly meeting they tried to calculate the portion of the farms overhead expenses that is fixed and the portion that is variable. over the past 12 months the number f nushels of seed corn that has been sold reached its peak in may when the total monthly overhead costs totaled 25500 for 100,000 bushels of seed corn sold. the lowest number of bushels sold in the last 12 months occurred in december when total overhead costs were 75000 for 4500 bushels sold. what was the variable cost per yard

Answer 1

Answer:

variable cost per bushel = $0.18848

total fixed costs = $6,652

Explanation:

we can use the high-low method of accounting to determine the variable and fixed costs:

• highest activity cost = $25,500
• highest activity level = 100,000 bushels

• lowest activity cost = $7,500 (*doesn't make sense to use $75,000)
• lowest activity level = 4,500

variable cost per unit = (highest activity cost - lowest activity cost) / (highest activity units - lowest activity units)

variable cost per unit = ($25,500 - $7,500) / (100,000 - 4,500) = $18,000 / 95,500 bushels = $0.18848 per bushel, since the quantities are large, we cannot round up

fixed costs = highest activity cost - (variable cost x highest activity units)

fixed costs = $25,500 - ($0.18848 x 100,000) = $6,652

Answer 2

Answer: The answer is $8 per yard

Explanation:

Using high and low cost method

Since a bushel is 8 gallons of dry corn

The overhead cost at high output =$25,500

The overhead cost at low output =75,000

The production volume at high output = 100,000 bushel

The production volume at low output = 4,500 bushel

Total sales = 8 × 100,000 = 800,000

Total sales = 8 × 4,500 = 36,000

Bushel. Total sales

High output. 100,000. 800,000

Low output. 4,500. 36,000

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95,500. 800,000

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Variable cost per yard = 764,000/95,500

=$8 per yard