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Cost classification and cost formula

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Chillicothe Meat Company produces one of the best sausage products in southern Ohio. The company's controller used the account-classification method to compile the following information.

a. Depreciation schedules revealed that monthly depreciation on buildings and equipment is $19,000.
b. Inspection of several invoices from meat packers indicated that meat costs the company $1.10 per pound of sausage produced.
c. Wage records showed that compensation for production employees costs $.70 per pound of sausage produced.
d. Payroll records showed that supervisory salaries total $10,000 per month.
e. Utility bills revealed that the company incurs utility costs of $4,000 per month plus $.20 per pound of sausage produced.

1. Classify each cost item as variable, fixed, or semi-variable.
2. Write a cost formula to express the cost behavior of the firm's production costs (Use Y=a+bX where Y denotes production cost and X denotes the quantity of sausage produced.

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Solution Summary

The solution explains how to classify costs as fixed or variable and then to develop the total cost formula

Solution Preview

Fixed costs do not change with production and variable costs change
1. a is fixed per month
b. ...

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