10 25 account analysis high low smith corporation wants to...

10-25 Account analysis, high-low. Smith Corporation wants to find an equation to estimate some of their monthly operating costs for the operating budget for 2021. The following cost and other data were gathered for 2020: Month Maintenance Costs Machine Hours Health Insurance Number of Employees Shipping Costs Units Shipped January $4,510 170 $8,570 63 $28,240 7,060 February $4,473 110 $8,570 73 $32,920 8,230 March $4,660 239 $8,570 89 $31,600 7,900 April $4,870 304 $8,570 102 $25,760 6,440 May $5,120 459 $8,570 84 $23,760 5,940 June $4,745 285 $8,570 85 $36,960 9,240 July $4,927 338 $8,570 88 $34,800 8,700 August $4,916 363 $8,570 80 $33,720 8,430 September $5,055 429 $8,570 90 $26,960 6,740 October $5,226 476 $8,570 101 $28,440 7,110 November $5,370 500 $8,570 91 $22,000 5,500 December $4,795 281 $8,570 101 $38,400 9,600 1. Which of the preceding costs is variable? Fixed? Mixed? Explain. 2. Using the high-low method, determine the cost function for each cost. 3. Combine the preceding information to get a monthly operating cost function for the Smith Corporation. 4. Next month, Smith expects to use 350 machine hours, have 90 employees, and ship 8,600 units. Estimate the total operating cost for the month.

Transcript

00:01 So for this question, we're giving the staying corporation, wants to find an equation to estimate some of the monthly operating cost for the operating budget for 2018.

00:13 And the cost that we gathered for 2017 are giving throughout the old year with the maintenance costs, the maintenance hours, the machine hours, rather, the health insurance, the number of employees, the shipping cost and the unit cost.

00:28 Now the first question wants us to find which of the preceding cost is variable, which of the preceding cost is fixed, which is mixed and which is variable fixed or mixed and what to explain.

00:44 So looking at the table, the cost that is fixed, the preceding cost that is fixed would be the health insurance cost.

00:55 And this is because the health insurance costs do not vary with the number of employees.

00:59 And therefore they remain fixed so we're going to say the else insurance costs are fixed because they did not vary with the number of employees and it remains fixed now the processing cost that is mixed would be maintenance costs because maintenance costs have a fixed component of the supervisor the maintenance salary and the staff salary but it could also have a variable cost component that varies to the machine hours.

02:18 So basically, the machine staff salaries, which you pay the salaries, which you pay the staffs are fixed and they do not change.

02:26 But at the same time, the maintenance costs also vary due to the machine hours that are used.

02:33 So maintenance costs are mixed.

02:47 And they are mixed because they could be fixed due to.

03:03 Maintenance staff salaries and variable with the machine hours used now moving on the cost are variable or the shipping costs shipping costs and they vary directly with the units are shipped so the more units you ship that's the that's what's going to change the shipping cost so they're all variable so shipping costs and rebu and depends directly on the unit shipped.

04:15 Now that's just the first part of the question.

04:18 Now the second question says using the high low method, determining the cost function for each cost.

04:39 So for the cost, if the cost are given by y and the cost are given by x, then the cost function will be equals to because function formula will be given by the following with the slope of question b and the intercept of a as why is it equals a plus b x so now for the cost we're going to let the i s cost be y h and with the cost driver of x h so let the i s cost value b y h with cost driver value of x and the lowest cost value b y l with cost driver value of xl so the slough coefficient b would be given by the formula under the i low method the coefficients the slough coefficient to be b equals to y h minus y l the value by um sorry x h minus x l so the intercept a would be the intercept a on that the ilo method would be a is equal to y h minus so this is a slope coefficient and this is the intercept so we y h minus b multiplied by x and i can make this a small multiply x h so now we're going to calculate the slope coefficient b for else insurance cost giving the highest cost of 8 ,600 and the number of employees of 105 and the lowest cost of 8 ,600 so basically the slope coefficients so for the else insurance costs so the highest cost value is 8 ,600 and number of employees is 105 and the lowest cost value for health insurance costs is 8 ,600 and the number of employees is 68 so therefore the slope coefficient b will be equals to y h minus y l divided by x h minus x l and this is equals to 8600 minus 8 600 divided by 105 minus 68 and this is zero dollars divided by 105 minus 68 which is still going to be zero dollars the slope the slope coefficient b is zero dollars so now moving on we're going to calculate the intercept a for the else insurance costs giving the um highest cost value of 6 ,000 and number of employees of 105 so the intercept of a would be y h minus b multiplied by i'm sorry multiplied by xh so the um intercept a for health insurance cost to be 8600 multiplied by zero minus zero multiplied by 105 and then a is equal to eight thousand six hundred dollars so therefore the cost function for health insurance cost is 8 ,000 y equals to 8600 so cost function for health insurance cost is equal to why is equals to 8 ,600 so now we're going to calculate the slope coefficient b of the maintenance cost given the so the maintenance cost given the highest cost value of 5 ,000 271 and machine hours machine hours of 510 and the lowest cost value is 4 ,452 and the machine hours is 120 so the slope coefficient m coefficient b would be y h minus y l divided by x h minus xl so this is 5271 minus 4 ,052 .52 divided by 510 minus 120 so this equals 819 divided by 390 and then b is equals to $2 .10 and that's the slope coefficients now to calculate the intercept a for the maintenance cost with the highest value of 5 ,270.

11:22 And the matching hours of 15 the intercept a would be y h minus b multiplied by xh so it would be equals to 5 ,271 minus 2 .10 multiplied by 510 and then it will be equal to 4 ,200 so the cost function for maintenance costs is equal to to y is equal to 4200 plus 2 .10 x so now we're going to calculate the slope coefficient b for the shipping cost so for the shipping cost the highest cost value is 34 ,0596 and the unit shipped is 9 ,016 units shipped is 9 ,016 units and the unit shipped is 9 ,16 units and the lowest cost value is 20 ,124 and the unit shift is 5 ,590 so the stop coefficient b would be b equals to using the same formula y h minus y l divided by x h minus x l that will be 34 ,0596 minus 20 ,124 divided by 9 ,016 minus 5 ,590 and this is 14 ,472 divided by 4 ,020 rather.

13:45 So the slope coefficient b is equal to $3 .60.

13:52 Now i'm going to calculate the intercepts on.

13:55 For the shipping costs with the highest cost value we are given at the unit ship so the intercept a would be y h minus b multiplied by multiplied by um sorry xh so a would be cost to 34 ,596 minus 3 .60 multiplied by 9 ,016 and then a is equals to zero dollars so the cost function for the shipping cost is equal to y is equal to $3 .60.

14:56 So now moving on to the third question...

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