ACCOUNTING PRINCIPLES II-MANAGERIAL-CH. 5,7-11-FA17 Name Short Answer 1. Given t

Question

ACCOUNTING PRINCIPLES II-MANAGERIAL-CH. 5,7-11-FA17 Name Short Answer 1. Given the following data, use the high/low method to determine the variable cost per inspection and the fixed costs. Prepare the budget equation. Mnth Number of Inspections Overhead Costs March 60 3,42 April 4,044 4,101 June Meredith takes her daughter with her on all inspections and pays her $40 per inspection. Due to slower business in the cooler months, Meredith estimates she will average 60 inspections per month for the next six months. Prepare a schedule showing Meredith's estimated total cost per inspection.

Explanation / Answer

Solution:

Calculation of total cost and preparation of the budget equation

Using high - low method

Variable cost = (Y2 - Y1) / (X2 - X1)

= ($4120 - $3420) / (110 - 60)

= $700 / 50

= $14

Total Cost = Variable cost * X + Fixed cost (Where X = Number of inspections)

At, 110 Inspections Total cost = $4,120

4,120 = 14 * 110 + Fixed cost

Fixed cost = $4,120 - $1540

  Fixed cost = $2,580

Budget equation Total Cost = Variable cost * X + Fixed cost

Preparation of schedule of estimated total cost per inspection for next six months

Here Variable cost Per inspection = $14 + cost pays to meredith's daughter per inspection

= $14 + $40

= $54

Month Number of inspections Variable cost Fixed cost Total cost Total cost per inspection September 60 $54 $2,580 $5,820 = $5,820/60 = 97 October 60 $54 $2,580 $5,820 = $5,820/60 = 97 November 60 $54 $2,580 $5,820 = $5,820/60 = 97 December 60 $54 $2,580 $5,820 = $5,820/60 = 97 January 60 $54 $2,580 $5,820 = $5,820/60 = 97 February 60 $54 $2,580 $5,820 = $5,820/60 = 97

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