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    Production schedules, high-low method for cost behavior

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    1. Smith Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following information:

    If Smith follows proper managerial accounting practices, which of the following production schedules should the company set?
    A) Entry A
    B) Entry B
    C) Entry C
    D) Entry D
    E) Entry E

    2. The Arlington Medical Clinic offers a number of specialized medical services. A review of data for the year just ended revealed variable costs of $25 per patient day, annual fixed costs of $300,000, and semivariable costs, which displayed the following behavior at the "peak" and "valley" of activity:

    March (2,200 patient days): $246,000
    August (2,700 patient days): $261,000

    A. Calculate the total cost for an upcoming month (2,600 patient days) if current cost behavior patterns continue. Arlington uses the high-low method to analyze cost behavior.
    B. There is a high probability that Arlington's volume will increase in forthcoming months as patients take advantage of new scientific advances. Can the data and methodology used in part A for predicting the costs of 2,600 patient days be employed to estimate the costs for, say, 4,000 patient days? Why or why not?

    3. A major software company has established customer service centers in India, Ireland, and Israel to provide support to its U.S. customers with foreign operations. The prices that the company charges for software reflect estimated costs in operating the centers (i.e., there is no separate charge for service). How should these centers be organized - as cost centers, profit centers, or investment centers?

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    Solution Summary

    The solution computes Production schedules, high-low method for cost behavior, cost center or profit center.