ACCT 2300_HW 4 solutions

# ACCT 2300_HW 4 solutions - Exercise 4-7 High-Low Method:...

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Exercise 4-7 High-Low Method: Scattergraph Analysis Zerbel Company, a wholesaler of large, custom-built air conditioning units for commercial buildings, has noticed considerable fluctuation in its shipping expense from month to month, as shown below: Units Total Shipping Month Shipped Expense January 4 \$2,200 February 7 \$3,100 March 5 \$2,600 April 2 \$1,500 lowest activity May 3 \$2,200 June 6 \$3,000 July 8 \$3,600 highest activity Required: 1. Using the high-low method, estimate the cost formula for shipping expense. Units Shippined Total Costs 8 \$3,600 2 \$1,500 6 \$2,100 To find the variable component (cost per unit shipped), take the change in cost over the change in activity. so: \$2,100 = \$350 per unit 6 Now, to find the fixed portion, take the TOTAL cost at the highest level of activity and from that we subtract the level of activity * variable cost per unit: Highest month (July) \$3,600 Less: variable component 2800 (8 units * \$350 per unit) Fixed cost \$800 2. The president has no confidence in the high-low method and would like you to "check ou" your results using the scattergraph method. Do the following: 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 one of your plotted points. b. Using the scattergraph, estimate the approximate variable cost per unit shipped and the approximate fixed ost per month, with the quick-and-dirty method.

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The point we intersect with our line falls approximately where the Y axis is at \$2,600. This is total costs. Line intercepts Y axis at approximately \$1,100. This represents fixed costs. Intercept meets X-axis at 5 units. This is the variable activity. To find variable cost per unit, take total costs - fixed costs/ variable activity: Using this information, we would get the following for fixed and variable costs: Total cost at 5 units shipped per month \$2,600 (a point falling on the line above) Less fixed cost element (intersection of the Y-axis) 1,100 Variable cost element \$1,500 \$1,500 (variable cost element) / 5 units (X-axis intersect) = \$300 per unit. Therefore, the cost formula is \$1,100 a month plus \$300 per unit shipped or Y = \$1,100 + \$300 X where "X" represents the number of units shipped. 3. What factors, other than the number of units shipped, are likely to affect the company's shipping expense? Explain? The cost of shipping units is likely to depend on the weight and volume of the units shipped and the distance traveled as well as the number of units shipped. In addition, higher cost shipping may be necessary to meet a deadline. 2 3 4 5 8 9 1500 2000 2500 3000 3500 4000 Shipping costs Column E Column F Total cost
Exercise 4-9 Cost Behavior: High-Low Method Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company's cost analyst has determined that if a truck is driven 120,000 miles during a year, the average operating cost is 11.6 cents per mile. If a truck is driven only 80,000 Required: 1. Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation.

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## This note was uploaded on 12/16/2009 for the course ACCT 116B 00138 taught by Professor Seymour during the Fall '09 term at Mesa CC.

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ACCT 2300_HW 4 solutions - Exercise 4-7 High-Low Method:...

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