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Lancaster Meat Company produces one of the best sausage products in southeastern Pennsylvania. 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 $21,000.
b. Inspection of several invoices from meat packers indicated that meat costs the company $1.20 per pound of sausage produced.
c. Wage records showed that compensation for production employees costs $.85 per pound of sausage produced.
d. Payroll records showed that supervisory salaries total $11,000 per month.
e. Utility bills revealed that the company incurs utility costs of $5,000 per month plus $.25 per pound of sausage produced.
Required:
1. Classify each cost item as variable, fixed, or semivariable.
2. Write a cost formula to express the cost behavior of the firm’s production costs. (Use the form
Y 5 a 1 bX, where Y denotes production cost and X denotes quantity of sausage produced.)
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