Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bo
ID: 2541476 • Letter: B
Question
Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow.
1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the High-Low Method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table.
Points:
2 / 2
2. With your Total Fixed Cost and Variable Cost per Unit from the High-Low Method, compute the total cost for the following values of N (Number of Units Produced).
Points:
0 / 3
3. Why does the total cost computed for 4,360 units not match the data for January in the table at the top of this panel?
The High-Low method only gives accurate data when fixed costs are zero.
The High-Low method is accurate only for months in which production is at full capacity.
The High-Low method gives accurate data only for levels of production outside the relevant range.
The High-Low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.
Points:
0 / 1
Feedback
Check My Work
Review the High-Low method, and use the smallest and largest levels of production in your computation.
Contribution Margin
Shaded cells have feedback.
Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements panels. Complete the following table from the data provided in the income statements. Each company sold 84,800 units during the year.
Points:
0 / 8
Feedback
Check My Work
Review the definitions of contribution margin ratio and unit contribution margin. Also review the formulas for break-even in terms of units sold and sales dollars.
Month Number of Units Produced Total Cost January 4,360 $65,600 February 250 6,250 March 1,000 15,000 April 5,250 56,250 May 1,750 32,500 June 3,015 48,000Explanation / Answer
Solution 1:
Highest level of activity - 5250 units, total cost = $56,250
Lowest level of activity - 250 units, total cost = $6,250
Variable cost per unit (High low method) = (Total cost at high level - Total cost at low level) / (Highest activity level - Lowest activity level)
= ($56,250 - $6,250) / (5250 - 250) = $10 per unit
Total cost = Fixed cost + Variable cost
$6,250 = Fixed cost + 250*$10
Fixed Cost = $3,750
Solution 2:
Total cost at 3500 units = 3500 * $10 + $3,750 = $38,750
Total cost at 4360 units = 4360 * $10 + $3,750 = $47,350
Total cost at 5250 units = 5250 * $10 + $3,750 = $56,250
Solution 3:
Total cost computed at 4360 unit is $47,350 while actual cost in january at 4360 units was $65,600. These two cost are not matching because "The High-Low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest"
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