134Chapter 4 •Techniques for Estimating Fixed and Variable CostsExercise #4:Total monthly cost of producing 1,600 units 5$25,000 ($12 1,600) $44,200; Total monthly cost of producing 2,750 units 5$25,000 ($12 2,750) 5$58,000Exercise #5:Total variable costs are $16,422,000 $901,600 $418,600 5$17,742,200. Thus, each desk has a variable cost of ($17,742,200/32,200) 5$551. In turn, Office Gallery would experience a negative contribution of $26 per desk that it sells for $525. At a volume of 1,000 desks, Office Gallery would lose $26,000. Notice that fixed costs are not controllable for this decision.Gwynn, Inc. specializes in making baseball bats. Exhibit 4.15 presents production and cost data for the past 12 months of operations.SELF-STUDYPROBLEMSExhibit 4.15Gwynn, Inc.: Monthly Production & Cost Informationa. Graph the relation between Gwynn’s total costs (y-axis) and the number of baseball bats produced (x-axis). Do any particular data points strike you as being “odd?”5The graph in Exhibit 4.16 depicts the relation between Gwynn’s total costs and bats produced. Please note that this scatter plot sorts the data in Exhibit 4.15 by the number of bats produced to help us evaluate the relation between the driver (bats produced) and costs.Two features of the data are particularly notable. First, the total cost of $1,472,000 for producing 45,000 bats in March is lowerthan the total cost of $1,541,000 for producing 42,000 bats in July. Cost has decreased even though production volume has increased! This anomaly suggests caution in using the data from March. It is possible that the firm recorded some costs incorrectly or, worse, failed to record some costs.Second, the plot shows a somewhat marked increase in total costs when production increases from 27,000 bats in April to 30,000 bats in May (the line connecting the April and May data is steeper than any other line). This jump suggests the presence of some step costs—perhaps Gwynn needed to purchase some additional equipment or hire more salaried personnel. Detailed account analysis can help identify these specific costs.