Chapter 5 Exercise 1 1. High-low method The following cost data pertain to 20X6

Question

Chapter 5 Exercise 1

1. High-low method

The following cost data pertain to 20X6 operations of Heritage Products:

Quarter 1 Quarter 2 Quarter 3 Quarter 4

Shipping costs $58,200 $58,620 $60,125 $59,400

Orders shipped 120 140 175 150

The company uses the high-low method to analyze costs.

a. Determine the variable cost per order shipped.

b. Determine the fixed shipping costs per quarter.

c. If present cost behavior patterns continue, determine total shipping costs for 20X7 if activity amounts to 570 orders.

Explanation / Answer

a. Determine the variable cost per order shipped.

= (60125-58200)/(175-120) =$35

b. Determine the fixed shipping costs per quarter.

=58200-120*35 =$54000

c. If present cost behavior patterns continue, determine total shipping costs for 20X7 if activity amounts to 570 orders.

Total Shipping Cost for 20X7 =(236345/585)*570 = $230,280

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