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    Apr 11, 2011, 09:26 PM
    3-38 Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods Cedar Rap
    3-38 Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods
    Cedar Rapids Implements Company produces farm implements. Cedar Rapids is in the process of
    measuring its manufacturing costs and is particularly interested in the costs of the manufacturing
    maintenance activity, since maintenance is a significant mixed cost. Activity analysis indicates that
    maintenance activity consists primarily of maintenance labor setting up machines using certain supplies.
    A setup consists of preparing the necessary machines for a particular production run of a product.
    During setup, machines must still be running, which consumes energy. Thus, the costs associated
    with maintenance include labor, supplies, and energy. Unfortunately, Cedar Rapid’s cost accounting
    system does not trace these costs to maintenance activity separately. Cedar Rapids employs two fulltime
    maintenance mechanics to perform maintenance. The annual salary of a maintenance mechanic
    is $25,000 and is considered a fixed cost. Two plausible cost drivers have been suggested: “units produced”
    and “number of setups.”
    Data had been collected for the past 12 months and a plot made for the cost driver—units of production.
    The maintenance cost figures collected include estimates for labor, supplies, and energy.
    Cory Fielder, controller at Cedar Rapids, noted that some types of activities are performed each time
    a batch of goods is processed rather than each time a unit is produced. Based on this concept, he has
    gathered data on the number of setups performed over the past 12 months. The plots of monthly maintenance
    costs versus the two potential cost drivers follow on page 122.
    1. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using
    the visual-fit method based on each potential cost driver. Explain how you treated the April
    data.
    ISBN: 0-536-47129-0
    Introduction to Management Accounting: Chapters 1-17, Fourteenth Edition, by Charles T. Horngren, Gary L. Sundem, William O. Stratton,
    David Burgstahler, and Jeff Schatzberg. Published by Prentice Hall. Copyright © 2008 by Pearson Education, Inc.
    122 Part 1: Focus on Decision Making
    Plant Closed
    Three Weeks in April
    Due to Storm Damage
    $30
    25
    20
    15
    10
    5
    0
    Units Produced (Thousands)
    0 1 2 3 4
    Maintenance Costs (Thousands)
    Plant Closed
    Three Weeks in April
    Due to Storm Damage
    $30
    25
    20
    15
    10
    5
    0
    Number of Setups
    0 5

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