Submitted by: Submitted by madisone1
Views: 802
Words: 373
Pages: 2
Category: Business and Industry
Date Submitted: 02/19/2012 12:15 PM
The following data relating to units shipped and total shipping expense have been assembled by Archer
Company, a wholesaler of large, custom-built air-conditioning units for commercial buildings;
[pic]
Required:
1. Using the high-low method, estimate a cost formula for shipping expense.
2. The president of the company has no confidence in the high-low method and would like you to check your results using a scattergraph.
a. Prepare a scattergraph, using the data given above. Plot cost on the vertical axis and activity on the horizontal axis. Use a ruler to fit a straight line to your plotted points.
b. Using your scattergraph, estimate the approximate variable cost per unit shipped and the approximate fixed cost per month with the quick-and-dirty method.
3. What factors, other than the number of units shipped, are likely to affect the company’s total shipping expense? Explain.
SOLUTION:
1.
| |Units Shipped |Shipping Expense |
|High activity level (June) |8 |$2,700 |
|Low activity level (July) |2 | 1,200 |
|Change |6 |$1,500 |
Variable cost element:
[pic]
Fixed cost element:
|Shipping expense at high activity level |$2,700 |
|Less variable cost element ($250 per unit × 8 units) | 2,000 |
|Total fixed cost |$ 700 |
The cost formula is $700 per month plus $250 per unit shipped or
Y = $700 + $250X,
where X is the number of...