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.)