Lucerne Ltd sells feather quilts and has never used CVP analysis in its 4‐year history. The manager provides you with the following sales and cost data for the first 4 years of operation.

Required

(a) Using the high–low method, estimate the cost function for the manufacture of quilts by Lucerne Ltd.

(b) Check whether the cost function you calculated in requirement

(a) would represent the actual costs of manufacturing for 2018 and 2019. What does this tell you about the high–low method of estimating a cost function?

Transcribed Image Text:

Year 2017 2018 2019 2020 Costs of manufacturing $1 192 000 1 397 500 1618000 1 790 000 Number of quilts 21000 23 500 27000 32 500