High-Low Method Quality Tools. Quality Tools Incorporated would like to estimate costs associated with its sales personnel. Salespeople are paid a salary plus commission. Commission rates vary among products and are based on sales dollars. The company reported the following monthly cost data related to sales personnel:
Reporting Period (Month) | Total Costs | Sales Amount |
January | $710,000 | $13,800,000 |
February | 695,000 | 13,600,000 |
March | 765,000 | 15,100,000 |
April | 650,000 | 12,000,000 |
May | 775,000 | 15,500,000 |
June | 750,000 | 14,700,000 |
July | 715,000 | 14,500,000 |
August | 680,000 | 13,100,000 |
September | 830,000 | 16,500,000 |
October | 815,000 | 16,000,000 |
November | 800,000 | 15,600,000 |
December | 690,000 | 13,200,000 |
Required:
a)
sales | Total cost | |
Highest activity | 16500000 | 830000 |
Lowest activity | 12000000 | 650000 |
change | 4500000 | 180000 |
Variable cost per $sales = change in cost /change in $ sales
= 180000/ 4500000
=$ .04 per $ sales
Fixed cost at highest activity=Total cost- variable cost
= 830000-(1650000*.04)
= 830000- 660000
= 170000
Y = 170000+ .04X
B)Estimated cost = 170000+ (.04* 12,500,000)
170000+ 500000
$ 670000
c)Estimated cost = 170000+ (.04*20,000,000)
= 170000+ 800000
= 970000
This is so because $ 20,000,000 is a huge amount and not incurred before in any of the reporting period (month)
High-Low Method Quality Tools. Quality Tools Incorporated would like to estimate costs associated with its sales...