Question

Not sure how to do future predictions

Required information [The following information applies to the questions displayed below.) Alden Co.'s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs. Month 1 2 3 4 5 6 Units Sold 317,500 162,500 262,500 202,500 287,500 187,500 Total Cost $155,000 98,750 203, 100 97,500 199,000 109,500 Month 7 8 9 10 Units Sold 362,500 267,500 76,500 147,500 91,500 97,500 Total Cost $296,300 149,250 67,500 128, 125 91,500 84,150 11 12 2. Predict future total costs when sales volume is (a) 375,000 units and (b) 415,000 units. Predictions Sales (units) 375,000 415,000 Total

Answer 1

Alden Co. Variable cost per sales dollar = Cost at high point - Cost at low point Volume at high point - Volume at low point = (296300 - 67500)/( 362500 - 76500) = 228800 / 286000 = $0.80 296300 2500 0.8 High Low Method - Calculation of fixed costs Total cost at high point Variable cost at high point Volume at the high point Variable cost per unit Total variable costs at high point Total fixed costs Total cost at low point Variable cost at high point Volume at the high point 76500 Variable cost per unit 0.8 Total variable costs at high point Total fixed costs 290000 6300 67500 61200 6300 Requirement 2 Predictions 375000 415000 Sales (units) Variable cost Fixed Cost Total Cost 300000 6300 306300 332000 6300 338300 375000 x 0.80 = 300000 ; 76500 x 0.80 = 332000