Required information Problem 21-2A Scatter diagram and cost behavior estimation

Question

Required information Problem 21-2A Scatter diagram and cost behavior estimation LO P1 [The following information applies to the questions displayed belowj Alden Co.'s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs. Units Sold 364, 50e 265,500 76,900 145,500 89,500 95,500 Month Units Sold 315,500 160,500 260,500 200,500 285,500 185,500 Total Cost $153,000 96,750 201,100 95,500 197,000 107,500 Total Cost $311,084 147,250 69,500 126,125 89,500 86,150 2 4 10 12

Explanation / Answer

Variable Cost per Unit =

Computation of the Fixed Costs and Variable Costs Units Sold Total Cost Variable Cost Month 1 315500 153000       114,496 Month 2 160500 96750 58246 155000 56250 Varible Cost Per Unit 0.36 Fixed Cost        38,504 The formula is Variable cost per unit (b) is calculated using the following formula:

Variable Cost per Unit =

A B p q Where, A is the total cost at highest level of activity; B is the total cost at lowest level of activity; p are the number of units/labor hours etc. at highest level of activity; and q are the number of units/labor hours etc. at lowest level of activity 2. Prediction of the future Costs Predictions Sales Units       371,000       411,000 Variable Costs @ .36 per unit       134,637       149,153 Fixed Costs        38,504        38,504     173,141     187,657 1. In the given problem Sale price per unit not available . We cannot compute further extension to this , we required Sale price per unit to compute Contribution Per Unit and Contribution Margin 2. From Contribution marin , we have to find out the value of Break Even Sales in Dollars and Units using following formulas Break Even Point Units Fixed Costs / Contribution Margin Per Unit Break Even Point in Dollors Sales Price Per Unit * Break Even Point in Units

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