Question

1. Complete the Assume that the company produce $76 per unit. Prepare a contribution format income have been assembled by Archer bits for commercial buildings: ethod; Scattergraph Analysis [LO2, L03] EXERCISE 3-7 High-Low Method; Scattergraph Ana The following data relating to un Company, a wholesaler of large, custo Units Shipped Total Shipping Expense Month January February.. March. April ..... NOVOW $1,800 $2,300 $1,700 $2,000 $2,300 $2,700 May. June.... July. $1,200 Required: 1. Using the high-low method, estimate a cost formula for shipping expense. 2. The president of the company has no confidence in the high-low method and would like you to check your results using a scattergraph. a. Prepare a scattergraph, using the data given above. Plot cost on the vertical axis and activ- ity on the horizontal axis. Use a ruler to fit a straight line to your plotted points. b. Using your scattergraph, estimate the approximate variable cost per unit shipped and the approximate fixed cost per month with the quick-and-dirty method. 3. What factors, other than the number of units shipped, are likely to affect the company's total shipping expense? Explain. "YCROIS

Answer 1

1). Answer: Y = $700 + $250X

Calculation:

High-low method is used to find the fixed and variable cost.

Variable cost element calculation =

	Units Shipped	Shipping Expense
High activity level (June)	8	2700
Low activity level (July)	2	1200
Change	6	1500

Variable cost element = Change in expense / Change in activity

                                            =1500/6

                                            = 250 per unit

Fixed cost element calculation =

Shipping expense at high activity level (a)	2700
Less variable cost element ($250 per unit * 8 units) (b)	2000
Total fixed cost (a) - (b)	700

Cost formula =

The cost formula is $700 per month plus $250 per unit shipped

Let X, be the number of units shipped

So, the cost formula is

Y = $700 + $250X

2). a.

I used excel to create the scattergraph. You could copy this to a graph paper.

For that i exported the below table to excel.

Month	Units Shipped	Total Shipping Expense
January	3	$        1,800
February	6	$        2,300
March	4	$        1,700
April	5	$        2,000
May	7	$        2,300
June	8	$        2,700
July	2	$        1,200

Then, in Insert tab, selected XY Scatter. Gave a straight line to plotted points as mentioned in question.

$3,000 $2,500 $2,000 Shipping Expense $1,500 $1,000 $5.00 Units Shipped

b).  

Calculation

Line intercepts Y axis at approximately $1,000. This represents fixed costs.

Intercept meets X-axis at 5 units. This is the variable activity

Total cost at 5 units shipped per month [a point falling on the regression line in scattergraph] (a)	2000
Less fixed cost element (intersection of the Y axis) (b)	1000
Variable Cost element (a-b)	1000

Variable cost per units = $1,000 ÷ 5 units = $200 per unit

The cost formula is $1,000 per month plus $200 per unit shipped

Let X be the number of units shipped.

Then Y = $1,000 + $200X

3). Other than number of units shipped, the weight and volume of the units and the distance traveled are likely to affect the company’s shipping charges. Along with that higher cost shipping may be required to meet a deadline