Sunland Copy & Printing wants to predict copy machine rep ✓ Solved

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Sunland Copy & Printing wants to predict copy machine repair expense at different levels of copying activity (number of copies made). The following data have been gathered:

  • May: $21,000

  • June: 35,000

  • July: 56,000

  • August: 48,000

  • September: 25,000

Determine the fixed and variable components of repair expense using the high-low method. Use copies made as the measure of activity. (Round variable component per copy to 2 decimal places, e.g. 0.15.)

Variable Component: $enter a dollar amount per copy rounded to 2 decimal places per copy

Fixed Component: $enter a dollar amount per month rounded to 0 decimal places per month

Paper For Above Instructions

To analyze the copy machine repair expenses at Sunland Copy & Printing, we will use the high-low method to determine the fixed and variable components of repair expense based on the given data.

Step 1: Collecting Data

The data provided for the repair expenses and the corresponding number of copies made is as follows:

  • May: Repair Expense = $21,000; Copies Made = 0 (Assuming, as no data was provided)

  • June: Repair Expense = $35,000; Copies Made = 35,000

  • July: Repair Expense = $56,000; Copies Made = 56,000

  • August: Repair Expense = $48,000; Copies Made = 48,000

  • September: Repair Expense = $25,000; Copies Made = 25,000

Step 2: Identifying High and Low Points

From the collected data, we identify the months with the highest and lowest number of copies made:

  • Highest: July ($56,000) with 56,000 copies made

  • Lowest: May ($21,000) with 0 copies made

Step 3: Applying the High-Low Method

The formula for calculating variable cost per copy using the high-low method is:

Variable Cost per Copy = (Cost at High Activity - Cost at Low Activity) / (High Activity Level - Low Activity Level)

Substituting the data:

Variable Cost per Copy = ($56,000 - $21,000) / (56,000 - 0) = $35,000 / 56,000 = $0.625

Therefore, the variable component is $0.63 per copy (rounded to two decimal places).

Step 4: Determining the Fixed Component

To find the fixed cost component, we use the total cost equation:

Total Cost = Fixed Cost + (Variable Cost per Copy * Number of Copies)

Using the high point (July):

$56,000 = Fixed Cost + ($0.625 * 56,000)

$56,000 = Fixed Cost + $35,000

Fixed Cost = $56,000 - $35,000 = $21,000

Therefore, the fixed component is $21,000 per month.

Conclusion

Based on the calculations using the high-low method:

  • Variable Component: $0.63 per copy

  • Fixed Component: $21,000 per month

Moving on to the additional questions, we have:

Break-even Analysis for Carla's Business

Given the fixed costs per month are $347,276 and the variable cost per dollar of sales is $0.32, we can calculate the break-even point.

The break-even point in sales is calculated with the formula:

Break-even Point (in dollars) = Fixed Costs / (1 - Variable Cost Ratio)

First, calculate the variable cost ratio:

Variable Cost Ratio = $0.32

Now substituting the values:

Break-even Point = $347,276 / (1 - 0.32) = $347,276 / 0.68 = $511,082.35

Thus, the break-even point is approximately $511,082.

Monthly Profit Calculation

To find the sales needed for a monthly profit of $33,388:

Sales = Fixed Costs + Target Profit / (1 - Variable Cost Ratio) = ($347,276 + 33,388) / 0.68

Sales = $380,664 / 0.68 = $560,676.47

The required sales to achieve a monthly profit of $33,388 would be $560,676.

Expected Profit for July

With expected sales of $980,700 for the month of July:

Expected Monthly Profit = Sales - Total Variable Costs - Fixed Costs

Total Variable Costs = Sales  Variable Cost Ratio = $980,700  0.32 = $313,824

Expected Profit = $980,700 - $313,824 - $347,276 = $319,600

The expected profit for July is $319,600.

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