Denburg Company provides information about its activity for the first four month
ID: 2628644 • Letter: D
Question
Denburg Company provides information about its activity for the first four months of 2014. The management of the company wants to determine the nature of the costs.
Month Miles Total Cost
January 80,000 $144,000
February 50,000 120,000
March 70,000 141,000
April 90,000 195,000
a) Estimate the variable cost per mile.
b) Estimate the total fixed cost per month.
c) Express a formula to estimate the total costs at other activity levels, defining your terms, and identify any facts assumed by your assumption.
d) What method did you use to make your estimates in
Explanation / Answer
a) (144000-120000)/(80000-50000) = 0.8$ p.u.
b) 120000 - (50000*0.8) = $80000
c) Fixed Cost = $80000 Variable Cost = $0.8 p.u.
Total cost at any other activity level = No. of units produced * Variable cost p.u ( 0.8 in this case) + Fixed Cost ($80000 in this case)
d) High low Method
Other Methods Are
Account Analysis
Scatter Graph
Linear Regession
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