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20 Mar 2019

1,000 units ofproduction? _$____________

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Elin Hessel
Elin HesselLv2
23 Mar 2019

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Alden Co.’s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs.

Month Units Sold Total Cost Month Units Sold Total Cost
1 318,000 $ 155,500 7 362,000 $ 292,624
2 163,000 99,250 8 268,000 149,750
3 263,000 203,600 9 76,400 67,000
4 203,000 98,000 10 148,000 128,625
5 288,000 199,500 11 92,000 92,000
6 188,000 110,000 12 98,000 83,650

Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. (Do not round intermediate calculations.)

High-Low method - Calculation of Variable Cost per Sales Dollar
Change in cost Cost at high point minus cost at low point $225,624 Variable cost per sales dollar = $0.79
Change in volume Volume at high point minus volume at low point $285,600
High-Low method - Calculation of Fixed Costs
Total cost at the high point $292,624.00
Variable costs at the high point:
Volume at the high point: 362,000 units sold
Variable cost per sales dollar $0.79
Total variable costs at the high point 285,980.00
Total fixed costs
Total cost at the low point
Variable costs at the low point:
Volume at the low point:
Variable cost per sales dollar
Total variable costs at the low point
Total fixed costs

Predict future total costs when sales volume is (a) 376,000 units and (b) 416,000 units.

Predictions
Sales (units) 376,000 416,000
Total costs $0 $0

Palladium Company is a merchandiser that sells its only productfor $128 per unit. The company
provided the following cost data for two levels of monthly salesvolume:

Sales in units

4,000

5,000

Cost of goods sold

$280,000

$350,000

Selling and administrative expenses

$240,000

$270,000

Required:

1.

Is cost of goods sold a variable, fixed, or mixed cost?

Variable cost

2.

Are the selling and administrative expenses a variable, fixed,or mixed cost?

Mixed cost

3.

Using the high-low method, what would be the estimated totalcontribution margin when 4,600 units are sold?

128,800?

4.

Using the high-low method, what would be the estimated netoperating income when 4,600 units are sold?

EXERCISE 2-14 High-Low Method; Predicting Cost [L02-4, LO2-5] The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were: Guest-Days of Occupancy Custodial Supplies Expense Month March ....... April May June ...... July ........ August September ...... 4,000 6,500 8,000 10,500 12,000 9,000 7,500 $7,500 $8,250 $10,500 $12,000 $13,500 $10,750 $9,750 . . . . . . Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days. Required: 1. Using the high-low method, estimate a cost formula for custodial supplies expense. 2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 3. Prepare a scattergraph using the data given above. Plot custodial supplies expense on the ver- tical axis and the number of guest-days occupied on the horizontal axis. Draw a straight line 4. through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $3,973.10 per month and the variable cost to be $0.77 per guest-day. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors? Using the least-squares regression estimates given in requirement 4, what custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 5. Net operating income. $ 6,000 $ 18,000 $ 30,000 Required: 1. Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. 3. Redo the company's income statement at the 5,000-unit level of activity using the contribution format.

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