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    Fixed; Variable and Semivariable Costs

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    Valley Meat Company produces one of the best sausage products in Pennsylvania. The company's controller compiled the following information by analyzing the accounting records:

    1. Meat costs the company $2.80 per pound of sausage produced.
    2. Compensation of production employees is $2.00 per pound of sausage produced.
    3. Supervisory salaries total $19,000 per month.
    4. The company incurs utility costs of $8,000 per month plus $0.50 per pound of sausage produced.
    5. Insurance and property taxes average $7,000 per month.

    A. Classify each cost as variable, fixed, or semivariable.
    B. Write a cost formula to express the cost behavior of the firm's production costs. (Use the form Y = a + bX, where X denotes the quantity of sausage produced.)

    I am having a tough time getting the formula to match my numbers

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    Solution Preview

    Part A.
    Variable costs: Whose Total cost increases in proportion of quantity produced. However, the avarage cost per unit produced remains same.
    - Meat cost
    -Employee compensation

    Fixed cost: Whose Total cost remains constant for any quantity ...