Following are sales and administrative cost data for Big Jack Burgers for the last four months:

Administrative cost is a mixed cost, and sale is a potential cost driver.

REQUIRED

A. Using the high-low method, create a cost function for administrative costs.

B. In your own words, explain why the high-low method might not be a good method for estimating the cost function.

C. Create a scatter plot and add a trend line. After examining the plot, use your judgment to determine whether the cost is fixed, variable, or mixed.

D. Perform regression analysis to create a cost function for administrative costs.

E. Can we know for certain that the cost function from part (D) provides a good estimate for next month’s administrative costs? Why or why not? 

F. Discuss whether sales are an economically plausible driver for administration costs for Big Jack Burgers.

Transcribed Image Text:

September October November December Sales 632,100 842,500 1,087,900 1,132,100 Administrative Costs $43,333 57,770 62,800 68,333