The Alameda Manufacturing Company uses a budgeting system in its manufacturing operations. The company's management wishes to apply some of these budgetary techniques to its other operations and has chosen the Billing De- partment as the first department for which a budgetary control system will be ap- plied. This department prepares and mails statements to customers on a monthly basis. Each bill shows details such as beginning balance, purchases, returns, and payments. The first step is to determine the fixed and variable costs in the department.

1. Suggest two activity bases that might be used in measuring variability.
2. Assume that the activity base to be used is the number of billings per month. An analysis of data for the past six months shows the following:

Management has asked you to determine the variable cost for each bill sent and the estimated monthly fixed costs of the department. Prepare the analysis.
3. Based on an analysis of billings in the past year, it is anticipated that activity in July will be high, at an estimated 5,460 billings, but that in August billings will drop to 4,250. What is the estimated total billing cost in each of these two months?

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Number of Total Month Billings Cost January 4,200 $8,531 February 4,100 8,455 March 3,600 8,160 April 4,750 8,842 May 5,380 9,228 June 5,200 9,118