EXERCISE 5-10 (CONTINUED)

2. - SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH05 COST BEHAIVIOR ANALYSSIS AND USE
SOLUTIONS TO QUESTION MANAGERIAL ACCOUNTING CH05 COST BEHAIVIOR ANALYSSIS AND USE
2. (Students’ answers will vary considerably due to the inherent impreci-sion of the quick-and-dirty method.) The approximate monthly fixed cost is $30,000—the point where the line intersects the cost axis. The variable cost per unit processed can be estimated using the 8,000-unit level of activity, which falls on the line: Total cost at an 8,000-unit level of activity ... $46,000Less fixed costs... 30,000Variable costs at an 8,000-unit level of activity ... $16,000 $16,000 ÷ 8,000 units = $2 per unit. Therefore, the cost formula is $30,000 per month plus $2 per unit proc-essed. Observe from the scattergraph that if the company used the high-low method to determine the slope of the regression line, the line would be too steep. This would result in underestimating fixed costs and overes-timating the variable cost per unit.

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Solutions Manual, Chapter 5

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