Question

11. APPENDIX 3A ESTIMATING VARIABILITY. Peters Pots mak es a large ceramic pot that it sells through a nationwide distribution channel. The following table details the sal and costs for the first seven months of this year. Observation Number of Units (x) Manufacturing Cost) January February March April May June July 1,000 2,500 500 1,000 1,500 1,200 800 8,500 $40,100.00 $100,100.00 $20,100.00 $40,100.00 $60,100.00 $48,100.00 $32,100.00 $340,700.00 Sum REQUIRED: a. Using the high-low method, calculate the variable and fixed costs of production for Peters Pots. b. Using the scattergram method, estimate the variable and fixed costs of produc- tion for Peters Pots. c. Using least squares regression, calculate the variable and fixed costs of produc- tion for Peters Pots.

Answer 1

Answer for A) Variable cost = (Total cost of high activity – Total cost low activity) / (Highest activity unit – Lowest activity unit)

= ($100,100- $20,100) / (2,500-500)

=$80,000/2,000

=$40

Fixed Cost - Total cost = (Variable cost per unit x Units produced) + Total fixed cost

$100,100= ($40*2,500) + Fixed Cost

$100,100 = $100,000 + Fixed Cost

Therefore, Total fixed cost = $100,100 - $100,000 = $100