Question

Aiden company monthly data for the past year follow management wants to use these datas to predict future variables and fixed costs month 1 unit sold 317,500 total cost $155,000 month 2 units sold 162,500 total cost of $98,750 month 3 262,500 total cost $203,100 month 4 $202,500 total cost 97,500 month 5 287,500 total cost $199,000 month 6 187,500 total cost of $109,500 March 7 units sold 362,500 total cost $296,300 month 8 units sold 267,500 total cost $149,250 month 9 units sold 76,500 total cost $67,500 month 10 $147,500 total cost $128,125 month 11 units sold 91,500 total cost $91,500 month 12 units sold 97,500 total cost $84,150 predict future total cost when sales volume is 375,000 units and 415,000 units

Answer 1

The predicted future total cost when sales volume is 375,000 units is $306,300.

The predicted future total cost when sales volume is 415,000 units is $338,300.

The future total cost can be predicted using the high-low method, which determines the variable cost per unit and the total fixed cost.

Taking the total units and cost of two months (highest and lowest):

Month Units Total Costs

7 Highest 362,500 $296,300

9 Lowest 76,500 $67,500

Difference 286,000 $228,800

Variable cost per unit = $0.80 ($228,800 ÷ 286,000)

With the highest units:

Total variable cost = $290,000 ($0.80 x 362,500)

Fixed costs = $6,300 ($296,300 - $290,000)

With the lowest units:

Total variable cost = $61,200 ($0.80 x 76,500)

Fixed costs = $6,300 ($67,500 - $61,200)

Let the number of units sold = x

Let the total cost = y

The equation for total costs, y = 0.8x + 6,300

To predict the total cost when sales volume is 375,000 units and 415,000 is as follows:

Total cost for 375,000 units sold = y = 0.8x + 6,300

y = 0.8(375,000) + 6,300

= $306,300

Total cost for 415,000 units sold = y = 0.8x + 6,300

y = 0.8(415,000) + 6,300

= $338,300