Purchase Solution

# 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.

Required:
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

##### 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 ...

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