Business

Question

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. Predict future total costs when sales volume is (a) 376,000 units and (b) 416,000 units.

1 Answer

  • Question Completion:

    Month      Units Sold        Total Cost

    1                  318,000          $155,500      

    2                 163,000             99,250          

    3                263,000           203,600          

    4                203,000             98,000          

    5                288,000           199,500          

    6                 188,000            110,000        

    7                362,000          292,624

    8                268,000           149,750

    9                  76,400            67,000

    10               148,000          128,625

    11               92,000            92,000

    12               98,000            83,650

    Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. (Do not round intermediate calculations.)

    Answer:

    Alden Co.

    Future total costs when sales volume is:  

                                         (a) 376,000 units   (b) 416,000 units

    Variable costs                   $297,040               $328,640

    Fixed costs                              6,644                      6,644

    Total costs                        $303,684               $335,284

    Explanation:

    a) Data and Calculations:

    Highest: Month 7     362,000     $292,624

    Lowest: Month 9       76,400        $67,000

    Difference               285,600     $225,624

    Variable cost = $0.79 ($225,624/285,600)

    Total variable cost:

    At Highest Level = $285,980 ($0.79 * 362,000)

    Fixed cost = Total costs - Total variable cost

    = $6,644 ($292,624 - $285,980)

    Check:

    At lowest level:

    Variable cost = $60,356 ($0.79 * 76,400)

    Fixed costs = $6,644 ($67,000 - $60,356)

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