Question

Lacy Dallas is examining customer service costs in the souther n Products. Camilla Products has more than 200 separate electrical products sold with a 6-month guarantee of full repair or replacement with a new product acna product is returned by a customer service report is prepared. This service report indades detalls of the problem and the time and cost of resolving the problem. Weekly data for the most recent 8-week period are as follows: Costs Number of Service Reports 185 20.500 285 KUN 18,500 14.900 21,600 16,500 21.300 1. Use the high-low method to compute the cost function relating custom to the banber of service Determine the estimate customer service department costs for week9 0 CE Tctoris

Answer 1

1.

Variable cost per service reports = (Highest activity cost – Lowest activity cost)/(Highest activity service reports – Lowest activity service reports)

= (21,600 - 12,000)/(440 - 120)

= 9,600/320

= $30

Fixed cost = Highest activity cost – (Variable cost per service reports x Highest activity service reports)

= 21,600 - (30 x 440)

= 21,600 - 13,200

= $8,400

2.

Total cost when 290 service reports = Fixed cost + (Variable cost per service reports x 290)

= 8,400 + (30 x 290)

= 8,400 + 8,700

= $17,100

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