# Do not reproduce without written permission problem

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ________________________________________________________________________ David W. Young • Management Accounting for Managers • Chapter 2 Page 26 Copyrighted Material. Do not reproduce without written permission. 1. Begin with the total cost formula: Total cost = fixed costs + (variable costs/unit * volume), or algebraically: TC = a + bx, where a is the fixed cost component and b is variable costs/unit. 2. Apply the formula to June, as follows: \$1,500 = a + b (10,000); a = \$1,500 – 10,000b 3. Then, apply the formula to July, as follows: \$1,700 = a + b (12,000) 4. Substitute from the June equation, as follows: \$1,700 = (\$1,500 – 10,000b) + 12,000b 5. This permits us to solve for b, as follows: \$200 = 2,000b; b = \$.10 6. We can then solve for a: a = \$1,500 – 10,000 (\$.10) = \$500 7. Our total cost formula therefore is TC = \$500 + \$.10 * kilowatt hours 8. We can test this with July: TC = \$500 + \$.10 (12,000) = \$1,700 Scatter Diagram Method. With a scatter diagram method, we have several data points, wh...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online