Hahndorf Gourmet Meats Ltd produces fine German sausages’ in the Adelaide Hills. The company’s accountant used the account classification method to compile the following information.

(a) Depreciation schedules reveal that the monthly depreciation on buildings and equipment is $19 000,

(b) Inspection of several invoices from meat packers indicate that meat costs the company Sub per kilogram of sausages.

(c) Wage records show that wages and on costs for production employees are $0.70 per kilogram of sausages.

(d) Payroll records show that supervisory salaries total $10,000 per month.

(e) Electricity bills reveal that the company incurs electricity costs of $4000 per month plus $0.20 per kilogram of sausages.

Required:

1. Classify each cost item as variable, fixed or semivariable, giving your reasons.

2. Write a cost formula to express the cost behaviour of the company’s production costs. (Use the formula Y = α + bX. where V denotes production cost and X denotes the number of kilograms of sausages produced.)