Black Manufacturing Company
Black Manufacturing produced a single product called the Great Beast. During the past three weeks, Lee High, the new cost accountant, had observed that production efficiency and input prices were constant but that output varied considerably. These three weeks were thought of as typical by sales representative, who said that they could be taken as average. Production costs were accumulated and accounted for under several different groups listed below.
Units of
Output
Week 1
Week 2
Week 3

Direct
Materials

Direct
Labor

Indirect
Labor

Indirect
Materials

Electricity

Factory
Insurance

$300
375
450

$500
625
750

$180
200
220

$300
300
300

$115
125
135

$125
125
125

400
500
600

Other
Overhead

$310
360
410

Lee High thought that this would be an ideal time to do some cost analysis on the Great Beast.
Based on the data for three weeks’ production costs, he felt it would be possible to identify fixed costs, variable costs, and semi-variable costs. Furthermore, Lee wanted to develop some equations that might be useful for managerial decision making. From such equations, it seemed that break-even volume could be generated. Since production was usually based on orders actually received and since products were shipped immediately upon completion, inventories of work-in-process and finished goods were practically nonexistent. When talking to the sales representative, Lee discovered that on typical orders the selling price of Great Beast was $7.00.
During lunch one day, Lee was told by the president that office expenses, including certain selling items, were fixed at $781 per week.
Lee High decided to begin his analysis with income statements from the past three weeks:

Sales
Cost of goods sold
Gross Margin
Less: other expenses
Net Income

Week 1
$2,800
1,830