27) Lichtenstein Imports needs to determine the variable utilities rate per mach
ID: 2342820 • Letter: 2
Question
27) Lichtenstein Imports needs to determine the variable utilities rate per machine hour in order to estimate cost for August. Relevant information is as follows.
Month Machine Hours Worked Utilities Cost
April 4,500 $9,560
May 4,200 $9,440
June 6,500 $10,725
July 7,000 $11,400
Lichtenstein anticipates producing 5,000 units in August, each unit requiring 1.5 hours of machine time.
The company uses the high-low method to analyze costs.
Required:
A. Calculate the variable and fixed components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for August.
C. Compare the high-low method versus the visual-fit method with respect to (1) number of data observations used in the analysis and (2) objectivity of the results.
Explanation / Answer
Solution:
The company uses the high-low method to analyze costs.
Answer (A): The variable and fixed components of the utilities cost:
Variable rate = (change in cost / change in activity)
= $1,960 / 2,800 Nos
= $0.70 per machine hour
Fixed cost = $11,400 - (7,000 Nos * $0.70) (variable costs)
Fixed cost = $6,500
.
Answer (B): The utilities cost for August:
Machine hours - August = 5,000 units * 1.50 hours
= 7,500 hours
Utilities cost - August = $6,500 (fixed cost) + ($0.70 * 7,500 machine hours)
Utilities cost- August = $11,750
Answer (C):
1. Number of data observations used in the analysis:
1. No of data observations used in the analysis:
We just watch two focuses, that is most astounding and the least. Though, Visual fit strategy, uses every one of the information focuses. Visual fit point is more favorable in number of information perceptions.
2. Objectivity of the result:
Visual fit strategy needs add up to objectivity as cost line is fit between the information focuses through visual estimate. The high low point is more worthwhile in objectivity of results.
Machine hours Total costs High activity level - july 7,000 $11,400 Low activity level - may 4,200 $9,440 Differece 2,800 $1,960Related Questions
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