Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a T
ID: 2329155 • Letter: U
Question
Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a Time Period that Differs from the Data Period
Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops. Data for the past 8 months were collected as follows:
Assume that this information was used to construct the following formula for monthly delivery cost.
Required:
Assume that 3,000 deliveries are budgeted each month for the coming year. Use the total delivery cost formula to make the following calculations:
1. Calculate total variable delivery cost for the coming year.
$
2. Calculate total fixed delivery cost for the year.
$
3. Calculate total delivery cost for the year.
$
Cost Behavior, Classification
Smith Concrete Company owns enough ready-mix trucks to deliver up to 120,000 cubic yards of concrete per year (considering each truck's capacity, weather, and distance to each job). Total truck depreciation is $250,000 per year. Raw materials (cement, gravel, and so on) cost about $51 per cubic yard of cement.
Required:
1. On your own paper, prepare a graph for truck depreciation. Use the vertical axis for cost and the horizontal axis for cubic yards of cement. Select the following amounts from the graph.
Depreciation cost of truck if it delivers 30,000 cubic yards of concrete in one year.
$
Depreciation cost of truck if it delivers 70,000 cubic yards of concrete in one year.
$
2. On your own paper, prepare a graph for raw materials. Use the vertical axis for cost and the horizontal axis for cubic yards of cement. Select the following amounts from the graph.
Cost of raw materials for 2,000 cubic yards of concrete.
$
Cost of raw materials for 5,000 cubic yards of concrete.
$
3. Assume that the normal operating range for the company is 90,000 to 96,000 cubic yards per year. Classify truck depreciation and raw materials as variable or fixed costs.
4. What action could Smith management take to reduce the truck depreciation cost from year to year.
5. What action could Smith management take to reduce the total raw materials cost from year to year.
High-Low Method
Luisa Crimini has been operating a beauty shop in a college town for the past 10 years. Recently, Luisa rented space next to her shop and opened a tanning salon. She anticipated that the costs for the tanning service would primarily be fixed, but found that tanning salon costs increased with the number of appointments. Costs for this service over the past 8 months are as follows:
Required:
1. Which month represents the high point? The low point?
In your calculations, round per unit costs to the nearest cent.
2. Using the high-low method, compute the variable rate for tanning. Compute the fixed cost per month. Round the variable rate per tanning appointment to the nearest cent and use it in your further calculations. Round the fixed cost per month to the nearest dollar and use it in your further calculations.
3. Using the variable rate and fixed cost, what is the cost formula for tanning services?
4. Calculate the total predicted cost of tanning services for September for 2,500 appointments using the formula found in Requirement 3. Of that total cost, how much is the total fixed cost for September? How much is the total predicted variable cost for September? If required, round the final answers to the nearest dollar.
5. Which of the following statements is correct when luisa uses the high-low method to estimate the costs?
Method of Least Squares, Developing and Using the Cost Formula
The method of least squares was used to develop a cost equation to predict the cost of receiving purchased parts at a video game manufacturer. Ninety-six data points from monthly data were used for the regression. The following computer output was received:
The cost driver used was number of parts inspected.
Required:
1. What is the cost formula?
Total cost of receiving = $ + ( $ × Number of parts inspected )
2. Using the cost formula from Requirement 1, identify each of the following: independent variable, dependent variable, Variable rate per professional hour, and fixed cost per month.
3. Using the cost formula, predict the cost of receiving for a month in which 8,800 parts are inspected.
Total cost of receiving = $
Identifying the Parts of the Cost Formula; Calculating Monthly, Quarterly, and Yearly Costs Using a Cost Formula Based on Monthly Data
Gordon Company's controller, Eric Junior, estimated the following formula, based on monthly data, for overhead cost:
Overhead Cost = $232,000 + ($58 x Direct Labor Hours)
Required:
1. Select the term in the right column that corresponds to the term in the left column.
2. If next month's budgeted direct labor hours equal 15,000, what is the budgeted overhead cost?
$
3. If next quarter's budgeted direct labor hours equal 75,000, what is the budgeted overhead cost?
$
4. If next year's budgeted direct labor hours equal 300,000, what is the budgeted overhead cost?
$
Explanation / Answer
Q1. Total delivery cost =41850 +(12*Number of deliveries) (It includes $41850 as fixed cost and $12 per delivery as variable cost) Req 1. Total Variable cost of 3000 deliveries: Number of deliveries: 3000 Variable cost per delivery 12 Total variable delivery cost of 3000 deliveries 36,000 Req 2. Total fixed cost of 3000 deliveries: 41,850 Req 3. Total delivery cost: Fixed delivery cosst 41850 Add: variable delivery cost 36,000 Total delivery cost: 77,850
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