Question

Jack Danielle Ltd. renders Network service to its customers. In order to make a good decision, the management of Jack Danielle starts to collect its number of service and service cost (including fixed and variable costs) over the last nine months as follows:

Month Number of Services Service costs ($)

January 6,300 $28,150

February 7,500 $30,000

March 5,100 $23,300

April 4,250 $20,000

May 4,500 $22,000

June 3,310 $17,500

July 3,750 $18,000

August 5,500 $24,000

September 3,300 $17,400

Required:

(a) Using High-Low method, prepare the cost formula (cost function) for service costs.

(b) Estimate the total service cost for October using both regression and high-low methods, assuming a least-square regression analysis estimated the total fixed costs to be $7,480 per month and the variable cost to be $3.12 per service. The number of service for October is expected to be 4,000. Comment on the accuracy of your high-low estimates in comparison to the estimate on regression analysis for October.

Part B

Affordable-Ltd. producing and selling three types of purse for female: Exclusive, Premium and Regular. The sales price of each type is $33, $28 and $20 respectively, and the variable cost of each type is $30; $26 and $19 respectively. The manager estimates sales of 200,000 units in the coming year consisting of 20,000 units of Exclusive, 60,000 units of Premium and 80,000 units of Regular. The company annual fixed costs for the year are $160,000.

Required:

(a) Compute the contribution margin of each type of the product and determine the total profit.

(a) Calculate the estimated break-even point in units for each type of purse.

Answer 1