Analyzing Mixed Cost Using High-Low and Regression, Preparing and Interpreting Contributio...

Analyzing Mixed Cost Using High-Low and Regression, Preparing and Interpreting Contribution Margin Income Statement

Refer to your solutions for Sigrid’s Custom Graphics in PB5-2.

Required:

1. Consider the pattern of the company’s activity and costs throughout the year. Would you consider this to be a seasonal business? Explain your answer and how this information could impact the relative proportion of fixed and variable costs for the business.

2. Using your cost estimates obtained with the high-low and regression methods, predict the store’s operating costs for the upcoming months based on the following expected sales levels.

3. Explain why there are differences between cost predictions based on high-low method and on least-squares regression. Which do you think is more accurate? Why?

4. Using the regression results, prepare contribution margin income statements for January through June. Assume that the business charges $80 per window on average.

5. Based on the regression equation, what is the expected fixed cost per month for the business? What would it expect total annual fixed cost to be?

6. Suppose that the actual fixed cost of the business last year was $7,320. Explain why this amount varies from the prediction based on regression results for Sigrid’s.