Fredericton Company Incurred the Following Costs and Machine Hours for the Months

question 193

Essay

Fredericton Company incurred the following costs and machine hours for the months of January and February.
Type of cost January February
Insurance $10,000 $10,000
Factory supplies 3,000 4,500
Direct labour 20,000 30,000
Maintenance 5,500 5,750
Machine hours 1,000 1,500
Required:
A. Assuming that the driver for all costs is machine hours, determine the cost behaviour of each of the four types of costs above (fixed, variable, or mixed).
B. Assume that the following is the cost formula for maintenance cost.
Total maintenance cost = $5,000 + ($.50 × no. of machine hours)
Construct a cost formula to be used to estimate total monthly costs within the relevant range.
C. Estimate the total monthly costs to be incurred by Fredericton Company at a level of 1,800 machine hours.