Question 5: Cost structure estimation month activity volume in units total...
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Accounting
Question 5: Cost structure estimation
month
activity volume in units
total costs
Oct
80
$6,145
Nov
75
$6,250
Dec
105
$7,150
a) Which cost structure estimation method should we use?
high-low methodaccount classification method
b) To identify the low and high points, we should look for
lowest/highest activitylowest/highest costs
c) Estimate the cost structure parameters: total FC= unit VC= Write down the total cost equation TC = + * volumed) Predict the total costs of producing 90 units: TC = e) Can we use the estimates from (c) to predict costs at volume of 5,000 units?
NO: 5,000 units is outside the relevant range (the normal range of activity is around 75-105 units).YES: Just plug in volume=5,000 in the total cost equation.
TC = e) Can we use the estimates from (c) to predict costs at volume of 5,000 units?
NO: 5,000 units is outside the relevant range (the normal range of activity is around 75-105 units).YES: Just plug in volume=5,000 in the total cost equation.
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