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146Chapter 4 •Techniques for Estimating Fixed and Variable CostsRequired:a. Use the high-low method to estimate Pizzeria Paradise’s quarterly cost equation (i.e., use the high-low method to estimate Pizzeria Paradise’s quarterly fixed costs and variable cost per pizza).b. How would you interpret the estimate of fixed costs if it were below zero?c. Use the cost equation you developed in part (a) to predict Pizzeria Paradise’s total quarterly costs for a volume of 50,000 pizzas. How confident are you in your estimate of total quarterly costs?4.51 Cost estimation: High-low method, relevant range (LO3).Zap, Inc., manufactures and sells a broadleaf herbicide that kills unwanted grasses and weeds. Via their television commercials, Zap encourages homeowners to “take control of their yard” by purchas-ing one of their “ZAP” kits for $39.95. Each “ZAP” kit includes a 32-ounce bottle of weed and grass killer concentrate and a 16-ounce bottle of poison ivy and tough brush killer concentrate. A review of the firm’s production and cost data for the previous four quarters revealed the following:Required:a. Use the high-low method to estimate Zap’s quarterly cost equation (i.e., use the high-low method to estimate Zap’s quarterly fixed costs and variable cost per ZAP kit sold).b. Using the four data points provided, graph Zap’s total costs (y-axis) as a function of the number of ZAP kits sold (x-axis). Does any particular data point strike you as being unusual?c. Since the data point for the second quarter appears to be “different” from the other data points, you decide to ask management whether anything unusual occurred in this quarter. Management informs you that, similar to prior years, the firm runs extra advertising in the second quarter, just before the peak summer months when weeds are most active. How does this information affect your analysis? Reestimate Zap’s quarterly cost equation, ignoring the data from the second quarter. Use this new cost equation to estimate the amount Zap spent on extra advertising during the second quarter.d. What inferences do you draw about graphing the data and ensuring data validity before estimating a firm’s cost structure?4.52 Cost estimation: Step costs, multiple cost drivers (LO2, LO3; Advanced).Carlton Stokes owns and operates a car-detailing business named “SuperShine & Detailing.” For $150, Carlton’s business will hand wash and wax customers’ cars, vacuum the interior, and thoroughly clean the upholstery, wheels, tires, and windows. In addition, Carlton’s business will pick up each customer’s car in the morning and return it to the customer’s workplace or home, as instructed.Buoyed by the success of his first shop, Carlton plans to expand his business to another location. Similar to his current location, Carlton is committed to using only