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Unformatted text preview: Exercise 52 (45 minutes) 1. Units Shipped Shipping Ex pense High activity level (June)...... 8 $2,700 Low activity level (July)......... 2 1,200 Change................................. 6 $1,500 Variable cost element: Change in expense $1,500 = =$250 per unit. Change in activity 6 units 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 units shipped. 2. a. See the scattergraph on the following page. b. (Note: Students’ answers will vary due to the imprecision of this method of estimating variable and fixed costs.) Total cost at 5 units shipped per month [a point fall ing on the regression line in (a)]............................... $2,000 Less fixed cost element (intersection of the Y axis).... 1,000 Variable cost element................................................. $1,000 $1,000 ÷ 5 units = $200 per unit. The cost formula is $1,000 per month plus $200 per unit shipped or Y = $1,000 + $200X. where X is the number of units shipped. Exercise 52 (continued) 2. a. The scattergraph would be: 3. The cost of shipping units is likely to depend on the weight and volume of the units and the distance traveled as well as on the number of units shipped. In addition, higher cost shipping might be necessary in some situations to meet a deadline. $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 2 4 6 8 10 Units Shipped Shipping Expense Y X Exercise 53 (30 minutes) 1. Month Units Shipped (X) Shipping Expense (Y) January 3 $1,800 February 6 $2,300 March 4 $1,700 April 5 $2,000 May 7 $2,300 June 8 $2,700 July 2 $1,200 Statistical software or a spreadsheet application such as Excel can be used to compute the slope and intercept of the leastsquares regression line for the above data. The results are: Intercept (fixed cost)................... $911 Slope (variable cost per unit)...... $218 R 2 ................................................ 0.92 Therefore, the cost formula is $911 per month plus $218 per unit shipped or Y = $911 + $218X. Note that the R 2 is 0.92, which means that 92% of the variation in shipping costs is explained by the number of units shipped. This is a very high R 2 and indicates a good fit....
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 Spring '08
 Tribunella
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