Question

Problem 3.52 Elina Siljander owns Elina's Stained Glass in Helsinki, Finland. The business produces and sells three different types of stained glass windows: small, medium, and large. Elina has two full-time employees who work regular schedules to cut glass and assemble the windows. She borrowed money from the bank to start the business and pay living expenses. She is concerned that her cash flows might not be high enough either to pay herself or to repay the bank loan. She would like to generate approximately €10,000 in pretax earnings each month to cover her living expenses and repay the loan. The following revenue and cost information covers the past four months: June July August September €9,050 €10,531 €12,946 €16,116 Revenues Raw materials and supplies Labour Rent Miscellaneous Profit 1,745 3,880 2,000 525 €900 2,433 4,041 2,000 701 €1,356 3,074 4,246 2,000 747 € 2,879 4,029 4,282 2,200 793 €4,812 x] Your answer is incorrect. Try again. Develop a cost function for Elina's Stained Glass. (Round answers to 0 decimal places, e.g. 15 or 15%.) 2000 2000.1 68 Cost function: Total Cost J% of revenues

Answer 1

Using the High and Low points method,
the variable component of the cost = (Cost at highest level of sales-Cost at lowest level of sales)/(Highest sales-Lowest sales) = ((16116-4812)-(9050-900))/(16116-9050) =	45%
Fixed component = (16116-4812)-16116*45% =	$               4,052
Cost function:
Total cost = Euro 4,052+45% of revenues.