Question

Using High-Low to Calculate Predicted Total Variable Cost and Total Cost for a Time Period that Differs from the Data Period Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops. Data for the past 8 months were collected as follows: Month Delivery Cost Number of Deliveries May $63,450 1,800 June 67,120 2,010 July 66,990 2,175 August 68,020 2,200 September 73,400 2,550 October 72,850 2,630 November 75,450 2,800 December 73,300 2,725 Assume that this information was used to construct the following formula for monthly delivery cost. Total Delivery Cost = $41,850 + ($12.00 × Number of Deliveries) Required: Assume that 3,000 deliveries are budgeted each month for the coming year. Use the total delivery cost formula to make the following calculations: 1. Calculate total variable delivery cost for the coming year. $ 2. Calculate total fixed delivery cost for the year. $ 3. Calculate total delivery cost for the year. $

Speedy Pete’s is a small start-up company that delivers high-end coffee drinks to large metropolitan office buildings via a cutting-edge motorized coffee cart to compete with other premium coffee shops. Data for the past 8 months were collected as follows: Month Delivery Cost Number of Deliveries May $63,450 1,800 June 67,120 2,010 July 66,990 2,175 August 68,020 2,200 September 73,400 2,550 October 72,850 2,630 November 75,450 2,800 December 73,300 2,725 Coefficients shown by a regression program for Speedy Pete’s data are: Intercept 43,293 X Variable 11.34 In your calculations, round the variable rate per delivery to the nearest cent. Required: Use the results of regression to make the following calculations: 1. Calculate the fixed cost of deliveries. $ Calculate the variable rate per delivery. $per delivery 2. Construct the cost formula for total delivery cost. Total Delivery Cost = $ + ($ × Number of Deliveries) 3. Calculate the budgeted cost for next month, assuming that 3,000 deliveries are budgeted. $

Answer 1

Answer 1st Part:

1. Total Delivery Cost = $41,850 + ($12.00 × Number of Deliveries)

Assume that 3,000 deliveries are budgeted each month for the coming year.

Total variable delivery cost for the coming year = Budgeted deliveries per month * 12 * Variable cost per delivery

= 3000 * 12 * $12.00

= $432,000

Total variable delivery cost for the coming year = $432,000

2.

Total fixed delivery cost for the year = Fixed delivery cost per month * 12 = $41,850 * 12 =$502,200

Total fixed delivery cost for the year = $502,200

3.

Total delivery cost for the year = Total fixed delivery cost for the year + Total variable delivery cost for the coming year

= $432,000 + $502,200

= $934,200

Total delivery cost for the year = $934,200

Answer 2nd Part:

Coefficients shown by a regression program for Speedy Pete’s data are: Intercept 43,293 X Variable 11.34

1. Fixed cost of deliveries = $43,293 per month

Variable rate per delivery = $11.34 per delivery

2. Cost formula for total delivery cost:

Total Delivery Cost = $43,293 + ($11.34 × Number of Deliveries)

3. Calculate the budgeted cost for next month, assuming that 3,000 deliveries are budgeted.

Budgeted cost for next month = $43,293 + ($11.34 × 3,000) = $77,313

Budgeted cost for next month = $77,313