Question

Pharoah Flower Cart incurred the following monthly costs. Balloons (12 per bouquet) Insurance Delivery Employee compensation Advertising Bouquets Sold 5,000 7,500 10,000 $14,536 $17,101 $19,676 $5,000 $5,000 $5,000 $ 6,502 $ 8,475 $10,450 $12,961 $14,431 $15,906 $ 1,500 $ 1,500 $1,500 Using the form y = mx + b, estimate the cost formula for each cost incurred by Pharoah Flower Cart. (Round unit cost to 2 decimal pl no variable component enter o for the amount.) Balloons 1.03 Insurance Delivery Employee compensation y = $ Advertising

Answer 1

Variable cost is a cost that varies in same proportion to output(remains same in per unit) .Fixed cost remains constant irrespective of output (remains same in totality) .Mixed cost is a combination of variable and fixed cost .

Balloons:Its is a mixed cost (neither constant in per unit nor constant in total)

	Highest activity	Lowest activity	Change
Cost	19676	14536	5140
Activity	10000	5000	5000

Variable cost per unit = Change in cost /change in activity

                          = 5140 /5000

                          = $ 1.028

Fixed cost at highest activity = Total cost -total variable cost

                                      = 19676 - [10000*1.028]

                                      = 19676 - 10280

                                         = 9396

y= 1.028X + 9396

b)

Insurance :Fixed cost

Y= 0X + 5000

C)

Delivery :It is a mixed cost

	Highest activity	Lowest activity	Change
Cost	10450	6502	3948
Activity	10000	5000	5000

Variable cost per unit = Change in cost /change in activity

                          = 3948 /5000

                          = $ .79

Fixed cost at highest activity = Total cost -total variable cost

                                      = 10450- [.79*10000]

                                      = 10450 - 7900

                                         = 2550

y=.79X + 2550

D)

Employee compensation:

	Highest activity	Lowest activity	Change
Cost	15906	12961	2945
Activity	10000	5000	5000

Variable cost per unit = Change in cost /change in activity

                          = 2945/5000

                          = $ .59

Fixed cost at highest activity = Total cost -total variable cost

                                      = 15906- [.59*10000]

                                      = 15906- 5900

                                         = 10006

y=.59X + 10006

e)Advertising :Fixed cost

Y = 0X +1500

**you can also calculate fixed cost at lowest activity level.The difference is due to rounding of variable cost to 2 decimal places.