Problem 18-2A Scatter diagram and cost behavior estimation LO P1 [The following
ID: 341851 • Letter: P
Question
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.
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.)
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 79,650Explanation / Answer
High-Low method - Calculation of Variable Cost per Sales Dollar
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 63,000High-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