Question: Jenkins Frames Company, which manufactures ornate
Jenkins Frames Company, which manufactures ornate frames for original art work, began operations in January, Year 1. Bruce Preston, the owner, asks for your assistance. He believes that he needs to better understand the cost of the frames for pricing purposes. You have collected the following data concerning actual production over the past year.
Required
1. To understand the department’s cost behavior, you decide to plot the points on graph paper and sketch a total cost line.
(1) Enter the number of units and their costs in increasing order.
(2) Plot the points on the graph.
(3) Sketch a graph so the line “splits†all of the points (half of the points appear above and half appear below the line).
(4) Using the line you just sketched, visually estimate the total cost to produce 4,000 units.
2. Using the high-low method, compute the total cost equation for the preceding data.
(1) Compute the variable cost per unit.
(2) Compute total fixed costs.
(3) Sketch a line between the high and low points on your graph.
(4) Using the high-low method, estimate the total cost to produce 4,000 units.
3. Name a third method that could be used to determine the fixed and variable cost estimate and comment on the advantages of your suggested approach.
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