1. (15 pts) The BillyBob Company has decided to estimate the fixed and variable

Question

1. (15 pts) The BillyBob Company has decided to estimate the fixed and variable components of setup costs using setup hours as the cost driver. You have collected the following data for the past 6 months. Month January February March April May June Set-up Hours 15 48 80 25 70 20 Set-up Costs $2,600 3,500 4,290 3,000 4,000 2,900 Required Estimate the fixed and variable components of set-up costs using the high-lovw method. (SHOW YOUR WORK). Using the high-low answers from above - predict the set-up costs for July which has 425 hours budgeted.

Explanation / Answer

Hours Setup Costs 1A Highest Activity 80 4290 Lowest Activity 15 2600 Difference 65 1690 Variable Cost: 26.00 Per Hour (1690/65) At 80 Hours: Total Costs 4290 Less: Variable Cost 2080 (80*26) Fixed Costs 2210 Cost Equation: 2210+26X 1B At 425 Hours: Variable Cost 11050 (425*26) Fixed Costs 2210 Total Costs 13260 2 Particulars April May June Total Budgeted Units 20400 27600 25400 73400 June Add: Desired Closing Units 4140 3810 3390 3390 (15% of Next Month Sales) 22600*15% Total Needs 24540 31410 28790 76790 April Less: Opening Units 3060 4140 3810 3060 (20400*20%) Production Budget 21480 27270 24980 73730 3 Collection in Sept. Amount September Sales 48000 (160000*30%) Working Note: July August September August Sales 82500 (150000*55%) Sales 200000 150000 160000 July Sales 28000 (200000*14%) Total Collections 158500 You have asked multiple question in one single problem; First 3 have been entertained in this. Please raise sepreate for others

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