Question

Fast Printing Company presents us the information of 12 months related to the purchase costs and the number of orders placed.

1. Project the purchasing costs for the first 6 months of next year using the function or cost equation developed by you. Use the space provided in the table above. Complete the Table.

Meses	Costos de compras	Numero de ordenes
1	$ 20,168	340
2	20.990	380
3	20,750	410
4	22.050	400
5	21,900	450
6	21,300	460
7	23,975	580
8	21,670	440
9	22,250	500
10	21,200	470
11	21,800	480
12	20,800	370
1	?	490
2		510
3		485
4		525
5		560
6		600

2. Determine the highest points and the lowest points, what is the COST DRIVER ??. To determine this, use the first 12 months.

3. Develop a cost equation to determine the fixed component and the variable cost component. Present the same.

4. What would be the total cost of purchases for the first half of next year?

Answer 1

The HIghest Point here is the Activity level at 580 Orders with purchase cost of $23,975

The Lovest Point here is the Activity level at 340 Orders with purchase cost of $20,168.

Cost Driver: Cost driver is the nit of Activity which causes changes to the purchase cost.

Here Cost Driver is the Number of Orders

Determining Fixed Components and variable Components

High Low Method is used to split the purchase cost into Fixed and Variable Cost Component using the below formula.

Variable Cost Per Unit = (Highest Activity Cost - Lowest Activity Cost) / (Highest Activity Units - Lowest Activity Units)

= ( $23,975 - $20,168 ) / (580 - 340)

= ( $3,807 / 240)

Variable Cost Per Unit = $15.86

Fixed Cost = Highest Activity Cost - ( Variable Cost per Unit * Highest Activity Units)

or

  Lowest Activity Cost - ( Variable Cost per Unit * Lowest Activity Units)

= $20,168 - ($15.86 * 340)

= $20,168 - ( $5392)

Fixed Cost = $14,776.

Cost of Purchases for the first half of Next year
Month	Number of Orders	Variable cost per Unit	Variable Cost per order	Fixed Cost	Total Purchase Cost
1	490	$15.86	$7,771	$14,776	$22,547
2	510	$15.86	$8,089	$14,776	$$22,865
3	485	$15.86	$7,692	$14,776	$22,468
4	525	$15.86	$8,326	$14,776	$23,102
5	560	$15.86	$8,882	$14,776	$23,658
6	600	$15.86	$9,516	$14,776	$24,292
Total Cost of Purchases for the first half of Next year		$138,932