C4-Student-Template.xlsx - Student Name Save file as First...

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Student Name: ________ Save file as: First name Last name Challenge 4 Once the challenge assignment is complete, upload this file using the link on Bb.
Challenge 4: Cost Estimation, Cost Behavior, Cost Prediction Challenge 4 Summary: High-End Lifts has learned that managing the business requires an in depth understanding of the costs that are incurred and reported on the income statement. Understanding cost behavior is crucial to controlling costs and managing profitability. The management team has noticed that some costs seem to change in direct proportion to changes in sales, other costs don’t seem to change at all relative to changes in sales, and still others appear to change but not at the same rate as the changes in sales. They’d like you to explain how to interpret cost behavior, and to estimate and predict future costs for developing and constructing master budget documents. Suggested Preparation: Read the information in the Challenge 4 Workbook to prepare for the challenge assignment. Watch the videos to gain a stronger understanding of the concepts. Task #1 : Using the sales mix percentages given in the problem, calculate the weighted average number of units sold in each of the last six months of year 4 (follow the directions for completing the yellow highlighted areas). Use the check-point figures to validate your answers. Task #2.1 : In the Excel template, tab Task #2 IS, you will find nine questions (in a yellow box) posted to the right of the income statement. Answer these questions (you will use the answers for completing Task #4 later in the challenge). Explore the information on Task #2 IS , and use it to develop your answers to the questions. You may need to refer to the U2.1 workbook to review some of the terms. Of importance is an understanding of the high-low method and the linear regression method for constructing cost equations for each account on the income statement and for the firm in total. These have been completed for you, but you need to interpret the answers. Task #2.2 : In the Excel template, tab Task #2.2 Cost Behavior , complete the table using the results from Task #2.1 for both the high-low method of analysis and the linear regression (the equations inside the graphs). Classify the costs into their fixed and variable components. Use the space provided to comment on any difference that exists between the HL and the LR methods. (Hint: There are only two graphs that provide different results for fixed and variable costs.) Explain why there is a difference between the two results. Determine the equation for summarizing fixed and variable costs and predicting future costs for budgeting purposes (use the linear regression results). Task #3: Using the equation derived in Task #2.2 , create a contribution margin income statement on tab Task #3 CM IS . Follow the directions in the tab and complete the yellow highlighted areas. Task #4: Write a letter to the management team that:

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