MA15-34.
Cost Estimation, Interpretation, and Analysis (Requires Computer Spreadsheet*)
Kendrick Anderson Furniture Maker, LLC creates custom tables in Atlanta. Assume that the
following represents monthly information on production volume and manufacturing costs since
the company started operations.
Dining
Room
Total Living Room Tables
Manufacturing Total Tables Tables Produce
Costs Produced Produced d
June Year 1 $71,000 110 25 85
July 57,500 90 45 45
August 79,724 130 15 115
September 64,250 95 36 59
October 57,300 76 24 52
November 60,900 92 48 44
December 62,700 105 24 81
January
Year 2 70,130 110 50 60
February 68,400 102 20 82
March 57,400 81 25 56
April 105,790 142 102 40
May 74,750 125 22 103
June 74,290 115 15 100
July 66,500 106 18 88
August 49,888 85 28 57
September 72,668 116 55 61
October 71,700 120 81 39
November 74,200 120 30 90
December 54,900 72 18 54
Required
a. Use the high-low method to develop a cost-estimating equation for total manufacturing
costs. Interpret the meaning of the "fixed" costs and comment on the results.
Highest number of tables produced = 142 April
Lowest number of tables produced =72 December
Highest production cost = $ 105790
Lowest production cost = $ 54900
, Variable cost = (Cost at highest activity - Cost at lowest activity) / (Highest activity - Lowest
activity)
Variable cost = ($105,790 - $54,900) / (142 - 72)
Variable cost ≈ $513.03 per table
Fixed costs = Total Manufacturing Costs - (Variable cost per unit * Total Tables Produced)
Fixed costs = $54,900 - ($513.03 * 72)
Fixed costs ≈ $17,820
Cost estimation equation y = 17820 + 513.03x
Interpretation
Fixed cost [or expenditure] is the amount of expense that does not relate to the output rate,
and thus does not change whenever the output rate decreases or increases. After it, all in all, the
amount of the order will be 17 820$ (15000£). So, the costs between the two might be divided
into the fixed cost and the variable cost (if the scale of production is included), which is $ 513.03
for the big-wall.
b. Use the chart feature of a spreadsheet to develop a scatter graph of total manufacturing
costs and total units produced. Use the graph to identify any unusual observations.
The unusual observation I made in this graph is that the presence of an outlier on the top
right of the graph from the month of April which was $105,790 in total manufacturing costs and
produced 142 total units.
Cost Estimation, Interpretation, and Analysis (Requires Computer Spreadsheet*)
Kendrick Anderson Furniture Maker, LLC creates custom tables in Atlanta. Assume that the
following represents monthly information on production volume and manufacturing costs since
the company started operations.
Dining
Room
Total Living Room Tables
Manufacturing Total Tables Tables Produce
Costs Produced Produced d
June Year 1 $71,000 110 25 85
July 57,500 90 45 45
August 79,724 130 15 115
September 64,250 95 36 59
October 57,300 76 24 52
November 60,900 92 48 44
December 62,700 105 24 81
January
Year 2 70,130 110 50 60
February 68,400 102 20 82
March 57,400 81 25 56
April 105,790 142 102 40
May 74,750 125 22 103
June 74,290 115 15 100
July 66,500 106 18 88
August 49,888 85 28 57
September 72,668 116 55 61
October 71,700 120 81 39
November 74,200 120 30 90
December 54,900 72 18 54
Required
a. Use the high-low method to develop a cost-estimating equation for total manufacturing
costs. Interpret the meaning of the "fixed" costs and comment on the results.
Highest number of tables produced = 142 April
Lowest number of tables produced =72 December
Highest production cost = $ 105790
Lowest production cost = $ 54900
, Variable cost = (Cost at highest activity - Cost at lowest activity) / (Highest activity - Lowest
activity)
Variable cost = ($105,790 - $54,900) / (142 - 72)
Variable cost ≈ $513.03 per table
Fixed costs = Total Manufacturing Costs - (Variable cost per unit * Total Tables Produced)
Fixed costs = $54,900 - ($513.03 * 72)
Fixed costs ≈ $17,820
Cost estimation equation y = 17820 + 513.03x
Interpretation
Fixed cost [or expenditure] is the amount of expense that does not relate to the output rate,
and thus does not change whenever the output rate decreases or increases. After it, all in all, the
amount of the order will be 17 820$ (15000£). So, the costs between the two might be divided
into the fixed cost and the variable cost (if the scale of production is included), which is $ 513.03
for the big-wall.
b. Use the chart feature of a spreadsheet to develop a scatter graph of total manufacturing
costs and total units produced. Use the graph to identify any unusual observations.
The unusual observation I made in this graph is that the presence of an outlier on the top
right of the graph from the month of April which was $105,790 in total manufacturing costs and
produced 142 total units.
