ASSIGNMENT #1 SUGGESTED SOLUTION Question #1 Cost Behavior Required: a) Identify all of the types of costs behaviors that have been uncovered and that should be included in the estimated production costs of the projects. Identify any that should not be included. (2 marks) •Cable costs are a stepped variable cost ( as the cost increases after a certain point) •Cable installers – Step VC ( some students my deem a VC ) •Engineers – stepped fixed cost •Logistics – mixed costs •Installation equipment – FC •Sales costs are not a production cost and should not be included. b) Using the hi/lo method, provide the cost function of the logistics support costs. (6 marks) Hi – 6500 meters Lo – 3000 meters 250 meters is an obvious outlier and should NOT be used First you must isolate the Logistics costs: meters6500 3000Total costs$250,675$ 125,550Remove:Installers 6500/100 x $11003000/100 x $110071,50033,000Engineers $5000 flat5,0005,000Cable ( m x $17.50)113,75052,500Amort (flat $2500)2,5002,500Sales costs ($3,000)3,0003,000$54,925$ 29,550Variable portion = $54,925 - $29,550= $25,375= $7.25 6,500m – 3,000m 3,500m TC=FC + VC(x) $29,550 = Q + 7.25(3000) Q= $7,800 Or $54,925 = Q + 7.25(6500) Q= $7,800
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