Question

In: Accounting

Problem 18-2A Scatter diagram and cost behavior estimation LO P1 [The following information applies to the...

Problem 18-2A Scatter diagram and cost behavior estimation LO P1

[The following information applies to the questions displayed below.]


Alden Co.’s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs.

   

Month Units Sold Total Cost Month Units Sold Total Cost
1 322,000 $ 159,500 7 358,000 $ 263,504
2 167,000 103,250 8 272,000 153,750
3 267,000 207,600 9 75,600 63,000
4 207,000 102,000 10 152,000 132,625
5 292,000 203,500 11 96,000 96,000
6 192,000 114,000 12 102,000 79,650

Problem 18-2A Part 2

2. Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. (Do not round intermediate calculations.)

High-Low method - Calculation of Variable Cost per Sales Dollar
Change in cost Cost at high point minus cost at low point 0
Change in volume Volume at high point minus volume at low point
High-Low method - Calculation of Fixed Costs
Total cost at the high point
Variable costs at the high point:
Volume at the high point:
Variable cost per sales dollar
Total variable costs at the high point
Total fixed costs
Total cost at the low point
Variable costs at the low point:
Volume at the low point:
Variable cost per sales dollar
Total variable costs at the low point
Total fixed costs

Solutions

Expert Solution

Month Units Sold Total Cost
1 322000         1,59,500
2 167000         1,03,250
3 267000         2,07,600
4 207000         1,02,000
5 292000         2,03,500
6 192000         1,14,000
7 358000         2,63,504
8 272000         1,53,750
9 75600             63,000
10 152000         1,32,625
11 96000             96,000
12 102000             79,650
Units Total Cost
Maximum Level 358000         2,63,504
Minimum Level 75600             63,000

High-Low method - Calculation of Variable Cost per Sales Dollar

Change in cost Cost at high point minus cost at low point (263504-63000) 2,00,504 0.71 (200504/282400)
Change in volume Volume at high point minus volume at low point (358000-75600) 282400
High-Low method - Calculation of Fixed Costs
Total cost at the high point         2,63,504
Variable costs at the high point:
Volume at the high point: 358000
Variable cost per sales dollar 0.71
Total variable costs at the high point 254180
Total fixed costs               9,324
Total cost at the low point             63,000
Variable costs at the low point:
Volume at the low point: 75,600
Variable cost per sales dollar 0.71
Total variable costs at the low point 53676
Total fixed costs               9,324

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