The controller of Joy Co has requested a quick estimate of the manufacturing supplies needed for the Morton Plant for the month of July when production is expected to be 470,000 units to meet the ending inventory requirements and sales of 475,000 units.Joy Co's budget analyst has the following actual data for the last three months. Using the high-low method to develop a cost estimating equation,the estimate of needed manufacturing supplies for July would be (CMA adapted)
A)$681,500.
B)$688,750.
C)$749,180.
D)$752,060.
E)$759,310.

Question

Quizplus · Accepted Answer

Step 1: Calculate the variable cost per unit
- Using the high-low method, we need to determine the variable cost per unit of manufacturing supplies.
- From the data given, the highest level of production (in terms of units) was in May with 500,000 units and the lowest level was in April with 400,000 units.

Variable cost per unit = (Total cost at high level - Total cost at low level) / (High level of activity - Low level of activity)
Variable cost per unit = ($925,000 - $700,000) / (500,000 - 400,000)
Variable cost per unit = $0.25

Step 2: Use the variable cost per unit to estimate the total cost for July
- We know that production in July is expected to be 470,000 units, so we can use the variable cost per unit to estimate the total cost of manufacturing supplies needed for July.
Total manufacturing supplies cost = ($0.25 per unit) x (470,000 units)
Total manufacturing supplies cost = $117,500

Step 3: Add the fixed cost to get the final estimate
- In addition to the variable cost per unit, there is also a fixed cost component to the manufacturing supplies. We need to add that to our estimate to get the final answer.

Final estimate = Total manufacturing supplies cost + Fixed cost
Final estimate = $117,500 + $634,560
Final estimate = $752,060

Therefore, the estimate of needed manufacturing supplies for July would be option D) $752,060.

The Controller of Joy Co Has Requested a Quick Estimate