Question

Problems (100 points) 1. Something New is a small one person company that provides elaborate and imaginative wedding cakes to order for very large wedding receptions. The owner of the comuny would like to understand the cost structure of the company and has compiled the following records of activity and costs incurred. The owner believes that the number of weddings catered is the best measure of activity. Month January February March Wedding 5 4 6 Costs incurred $2,800 $2.400 $4.000 $5,000 $5,800 S10,400 19 April May 12 20 June (a) Using the high-low method, estimate the variable cost per wedding and the total fixed cost per month. (6 points) (b) What amount of costs would you expect to be incurred if 25 wedding are catered in July? (3 points)

Answer 1

	Month	Weddings	Cost incurred
	Jan	5	$                2,800.00
	Feb	4	$                2,400.00
	Mar	6	$                4,000.00
	April	9	$                5,000.00
	May	12	$                5,800.00
	June	20	$              10,400.00
1)		Wedding	Cost Incurred
	High Level of Activity(A)	20	$              10,400.00
	Low Level of Activity(B)	4	$                2,400.00
	Change(A)-(B)	16	$                8,000.00
	Variable cost per unit=($7600/15)	$                            500.00
	Variable cost per unit=Change in Cost Incurred/Change in Number of weddings
	Variable cost per Unit=	$                            500.00
	Total Cost at High level of activity=(A)	$                      10,400.00
	Variable cost (20*$500)	$                      10,000.00
	Fixed Cost(A)-(B)	$                            400.00
2)	Total cost in case 25 weddings catered in July
	Variable Cost=(25*500)	$                      12,500.00
	Fixed Cost	$                            400.00
	Total Cost	$                      12,900.00