Johnson Leathergoods manufactures backpacks. The management accountant wants to calculate the fixed and variable costs associated...
Johnson Leathergoods manufactures backpacks. The management accountant wants to calculate the fixed and variable costs associated with the leasing of a sewing machine. Data for the past four months were collected as follows:
| MONTH | LEASE COST | MACHINE HOURS |
| APRIL | $15,000 | 800 |
| MAY | 10,000 | 600 |
| JUNE | 12,000 | 770 |
| JULY | 16,000 | 1,000 |
a. Using the high-low method, calculate the variable rate for the lease cost, the fixed cost of leasing, and write down the cost equation.
b. Using the scattergraph method, draw the graph and check for linearity and outliers.
Homework Answers
Please find below the solution..
| Month | Lease cost | MACHINE HOURS | |
| APRIL | $15,000 | 800 | |
| MAY | 10,000 | 600 | |
| JUNE | 12,000 | 770 | |
| JULY | 16,000 | 1,000 | |
| High | 16000 | 1000 | |
| Low | 10000 | 600 | |
| Difference | 6000 | 400 | |
| Variable cost = | |||
| 6000/400 | 15.00 | ||
| Fixed cost = 16000-1000*15 | 1,000 | ||
| Therefore cost equation = | $1000+Machine hr *$15 | ||
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