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Myrick Woodcraft Company (MWC) manufactures "antique" wooden cabinets to house modern televisions. MWC began operations in January of last year. Sidney Myrick, the owner, asks for your assistance. He believes that he needs to better understand the cost of the cabinets for pricing purposes. You have collected the following data concerning actual production over the past year:

Number of

Month Cabinets Produced Total Cost

January........................................800..............................$21,000

February....................................3,600................................32,500

March .......................................1,960................................29,500

April ............................................600................................18,600

May..........................................1,600................................29,000

June..........................................1,300................................27,000

July..........................................1,100.................................25,600

August......................................1,800.................................31,000

September.................................2,280.................................32,000

October....................................2,940.................................31,500

November.................................3,280.................................32,000

December....................................400.................................16,500

Required

a. To understand the department's cost behavior, you decide to plot the points on graph paper and sketch a total cost line.

(1) Enter the number of units and their costs in increasing order.

(2) Plot the points on the graph.

(3) Sketch a graph so the line "splits" all of the points (half of the points appear above and half below the line).

(4) Using the line you just sketched, visually estimate the total cost to produce 2,000 units.

b. Using the high-low method, compute the total cost equation for the preceding data.

(1) Compute the variable cost per unit.

(2) Compute total fixed costs.

(3) Sketch a line between the high and low points on your graph.

(4) Calculate the total cost assuming 2,000 cabinets are made.

c. Comment on which method you believe is better.

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