Question

Required information [The following information applies to the questions displayed below.) Caiman Distribution Partners is the Brazilian distribution company of a U.S. consumer products firm. Inflation in Brazil has made bidding and budgeting difficult for marketing managers trying to penetrate some of the country's rural regions. The company expects to distribute 450,000 cases of products in Brazil next month. The controller has classified operating costs (excluding costs of the distributed product) as follows. Account Supplies Supervision Truck expense Building leases Utilities Warehouse labor Equipment leases Data processing equipment Other Total Operating cost $ 721,000 229,000 1,390,000 867,000 217,000 848,000 747,000 945,000 833,000 $6,797,000 Behavior All variable $164,000 Fixed $182,000 Fixed $543,000 Fixed $130,000 Fixed $139,000 Fixed $614,000 Fixed All fixed $390,000 Fixed Although overhead costs were related to revenues throughout the company, the experience in Brazil suggested to the managers that they should incorporate information from a published index of Brazilian prices in the distribution sector to forecast overhead in a manner more likely to capture the economics of the business.

Answer 1

(b) here, operating cost = fixed cost + variable cost

finding variable and fixed costs

	unit	cost
high level activity	437000	6362267
low level activity	274000	5699151
change	163000	663116

unit variable cost = 663116/163000 =4.06819

fixed cost = total cost - total variable cost  

for 437000 units = 6362267- (437000*4.0682) = 6362267-1777803 = 4584464

for 450000 cases, total operating cost will be ,

fixed cost+variable cost

4584464+ ( 450000 *4.0682) = 4584464+1830690 = 6415154

operating cost = $ 6415154

(e) most appropriate estimate for the given circumstances :

1. high low method : reason : high low method is the most appropriate estimate for the given situation because as we have seen above , it gives the fixed costs , and variable costs per unit so that we can find the total operating costs for any given units .

2. simple regression :reason : simple regression can also be used as it  helps to find out the relationship between the dependent variable (here the variable cost ) and independent variable (fixed cost)

wrong answers and the reason :

multiple regression maynot be the most appropriate estimate as it consideres more than one independent variables and we have only one independent variable which is here , the fixed cost , accoriding to the given information.

controller analysis is the process of  testing for defects , capturing data, and analyzing the results for better future performance and may not be the best estimate for the given situation .